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prenotice expert adjusted these franchise rates to make them
exclusive of marketing and reservation charges, and ultimately we
have decided that the franchise rates respondent used in the
notice were overstated. A franchisee, in exchange for a royalty,
receives trade names and marks, business systems and expertise,
and for additional fees may receive reservations and marketing
services.19 Hotel franchisors generally offer preopening
assistance with site selection and feasibility, design, obtaining
financing, and the hiring and training of staff. The
consultation and technical services and training provided by the
franchisor continue after the opening of the hotel. Neither HIC
nor the Hyatt International group as a whole, received the level
of intangibles and services from Hyatt Domestic that would
warrant the full charge for a franchise relationship.
Considering the relationship between the Hyatt International
group and Hyatt Domestic, it was unreasonable for respondent to
allocate income based on 100 percent of the hotel franchise
royalty rate.
Respondent’s trial position relied on the BVS' allocation of
less than $24 million for use of the Hyatt trade names and marks
18(...continued)
income would, in turn, be paid by HIC to Hyatt Domestic.
19 See Canterbury v. Commissioner, 99 T.C. 223 (1992), for
a description of franchising in the restaurant industry.
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