New Stimulus Package Includes Some Food & Beverage Industry Help. Is it Enough?
After it sat on his desk for a week, President Donald Trump signed a $2.3 trillion spending bill (the Consolidated Appropriations Act of 2021) on the evening of Sunday, December 27. Delayed by Trump’s failed demands for $2,000 stimulus checks for individuals — now a separate Senate vote, which Majority Senate Leader Mitch McConnell blocked, the law combines $900 billion in COVID-19 relief with a $1.4 trillion omnibus spending package.
The signature came too late to prevent federal unemployment benefits for around 14 million people, including the over 2.1 million bar and restaurant staff who have lost their jobs, from expiring on December 26. Though, it appears that the new $300 weekly benefits, which are half of the current payments, will be applied retroactively.
The good news is that the bill contains some victories for the hospitality industry. However, some experts are questioning whether there’s sufficient help in the package for the restaurants and bars that have suffered shut-downs, reduced guest capacity and an overall loss of revenue due to the COVID-19 pandemic.
Here are the pieces of legislation that specifically affect the food and beverage industry.
Deduction of Payroll Protection Program (PPP) Funds on Federal Tax Returns
The CARES Act that Congress passed in March 2020 established the Paycheck Protection Program (PPP) and allowed business owners with fewer than 500 employees to apply for loans of up to $10 million. Funds were to be used specifically to pay rent, mortgage, utilities and payroll. Although these are classified as loans, they are eligible to be considered for forgiveness by the Small Business Administration.
The new legislation adds $285 billion to the PPP. In addition, small businesses that took PPP loans will be allowed to deduct from taxes eligible expenses that were covered by forgiven PPP funds. In addition, forgiven PPP loans will not be counted toward taxable gross income. While this is technically double-dipping, it may benefit some small businesses.
The Independent Restaurant Coalition (IRC) was impressed enough to say “thank you” in its response to the bill. However, it issued a statement claiming that this will do little to help most struggling restaurants and bars:
“The small changes to PPP funding for independent restaurants will buy time for Congress to negotiate a more robust plan, and we are grateful to many champions in the House and Senate who fought for those changes. But make no mistake: independent restaurants and bars will continue to close without additional relief this winter, leaving millions more out of work”
Members of the IRC are lobbying for their own proposed bill called the RESTAURANTS Act (Real Economic Support That Acknowledges Unique Restaurant Assistance Needed To Survive Act), which already passed the House and has 52 co-sponsors in the Senate. The Act provides funding for the Restaurant Revitalization Fund, which will cover the gap between projected 2019 sales and 2020 revenues forecasts.
Expanded PPP Borrowing Limits for Restaurants, Bars & Hotels
Restaurants, bars and hotels, which have been particularly hard hit during the pandemic, can now apply or up to 3.5 times average monthly payroll costs, rather than 2.5 times that other types of businesses are eligible for. The loan amount has a potential maximum of $2 million.
Alli Jarrett, owner of Harold’s Restaurant & Tap Room in Houston, says this measure, along with others such as being able to deduct the cost of personal protective equipment (PPE) for employees and of facilitating social distancing, are “very good”. That said, she also believes that it’s not an all-encompassing package that fixes all ills. “This is a major crisis for all cities and towns,” she said, “Restaurants and other small businesses need a long-term recovery agenda, which includes long-term capital, liability protection, affordable healthcare and child care for our employees.”
Pasha Morshedi of Rosewater, a cocktail bar in Clear Lake, expressed similar concerns about what the industry still needs — especially bars, which have dealt with repeated closures. “We really needed trickle-up support,” he said. “PPP loans were helpful. We got $20,000 and it covered one month of payroll and rent. But we were shut down for almost five months. We ended up burning through money we were saving for an expansion to pay our staff over that period and maintain their health insurance. No regrets, but with no direct economic support, we in the service industry have no choice but to work. I’d like to see more direct payments to staff and accountability in PPP loans because in some cases I haven’t seen owners suffering the same personal losses as the staff who make them money.”
Morshedi also emphasized that with the proven success of bars responsibly selling cocktails to-go, it’s a COVID-era concession that the state of Texas needs to retain permanently.
100% Deduction of Business Meals
The new law now allows 100% of the costs of business meals, including alcohol, to be deducted from taxes. Supporters in Congress, as well as President Trump, see the measure as a way to revive the restaurant industry. Critics call it the “Three-Martini Lunch” tax break and say it comes too late to help many restaurants, benefits the wealthy and assumes that people will have expendable income to spend on dining out.
The 100% deduction of business meals isn’t new. It was allowed well into the 1970s. During his 1976 presidential campaign, it was criticized by Jimmy Carter as a luxury subsidized by the working class. The Tax Reform Act of 1986 signed by President Ronald Reagan cut the deduction to 80%, and it was further reduced to 50% in 1993 under President Bill Clinton, where it’s remained to this day. The tax-break reduction seemed to have little effect on the restaurant industry, which grew by over 50% in both the ’80s and ’90s. During the current pandemic, when most state governors are mandating restaurants operate at reduced capacity (most parts of Texas’s are at 75%), many critics say this does more for executives than small restaurant owners.
Reduction of Small Distillery Tax Is Now Permanent
On the bright side, the alcohol industry got most of what it lobbied for, namely the extension of the Craft Beverage Modernization and Tax Relief (CBMTRA), which was a reduced tax rate included in the Tax Reform Act of 2017 that was designed to help small craft brewers, vintners and distillers.
The decision comes just in time for small distillery owners like Kelly Railean, owner of Railean Distillers, which produces rum, whiskey, vodka and agave spirits in San Leon, Texas. Her business has taken hits on all fronts since March. “We had to close down the tasting room for seven months, and when we opened back up, we had to reduce capacity.” Railean has also taken cuts in restaurant sales, “You know how you see the smaller menus in restaurants right now? It’s the same for alcohol. Restaurants are stocking up on Jack Daniels and Bacardi and politely passing on the little guys. To have to pay that additional excise tax would have just killed us” Railean said. “We have already diversified as much as we can, offering rum cakes for sale — anything to keep going.”
Distilled Spirits Council President and CEO Chris Swonger says “I can guarantee you that across the country craft distillers and their employees will be raising a glass of their finest spirits this evening and toasting their legislators for supporting struggling craft distilleries in need of economic relief. By making the reduced tax rates permanent for small distillers, Congress is protecting jobs, boosting communities and helping to get these businesses back on a path of stability and growth. We look forward to the president swiftly signing this package into law.”
Unfortunately, the distillers who leaped into action producing hand sanitizer and providing it free to first responders when there was a nationwide shortage, are not receiving any compensation for their time and expenses, except for loosened regulations and the tax breaks built into the CBMTRA.
While the CBMTRA is clearly good news for small brewers, vintners and distillers the industry still has some items on its legislative wish list. That includes ending blue laws (state regulations that outlaw the sale of alcohol on Sunday), tariff relief (the tariff war has spurred retaliatory tariffs being levied on United States exports) and allowing for the tasting of liquor in liquor stores (which is illegal in some states).
The rest of the hospitality industry however, continues to struggle. According to the Bureau of Labor Statistics, unemployment in the food and beverage industry is 134% higher than the national average. Over 2.1 million jobs have been lost since March, making it the hardest hit sector in the nation. That’s why the National Restaurant Association has set up a webpage for supporters of the RESTAURANTS Act, but with 2020 quickly drawing to a close, it seems likely that Congress will not take action on that bill this year.
A development that concerns Jonathan Horowitz, founder of Convive Hospitality Consulting and former CEO of Legacy Restaurants, who states:
“Passing this stimulus package was a good step towards getting assistance where it’s needed; however, no one should think this is the answer to the industry’s problems. Restaurants and bars will continue to suffer throughout 2021 until consumers get more comfortable with dining out again. Tax breaks and deductions are long-term benefits that will help if a business can survive long enough to take advantage of them. What’s needed even more is additional, immediate, tangible financial assistance to keep restaurants open and employees working. The industry as a whole is very resilient, but no one can plan or adapt enough to make it through something as disruptive as this pandemic without significant outside assistance. I’m hopeful we will see more done specifically to help the industry in the new year.”