After sitting on his desk for a week, President Donald Trump signed a $ 2.3 trillion spending bill on the evening of December 27 (Consolidated Appropriations Act of 2021). Delayed by Trump’s failed calls for $ 2,000 stimulus checks for individuals – now a law combines $ 900 billion in COVID-19 relief with a $ 1.4 trillion omnibus spending package.
The signing came too late to prevent federal unemployment benefits for around 14 million people, including the over 2.1 million bar and restaurant workers who lost their jobs, from expiring on December 26. However, it appears that the new $ 300 weekly benefits will apply half of the ongoing payments retrospectively.
The good news is that the bill includes some wins for the hospitality industry. However, some experts question whether the package includes enough help for the restaurants and bars that have closed, reduced guest capacity and lost revenue overall due to the COVID-19 pandemic.
Here are the laws that specifically affect the food and beverage industry.
Deduction of Payroll Protection Program (PPP) funds for federal tax returns
The CARES law That Congress, passed in March 2020, established the Paycheck Protection Program (PPP) and enabled business owners with fewer than 500 employees to apply for loans of up to $ 10 million. The funds should be specifically used to pay rent, mortgage, utilities, and payroll. Although these are classified as loans, they can be classified as forgiving by the Small Business Administration.
The new legislation increases the PPP by $ 285 billion. In addition, small businesses that have taken out PPP loans may be deducted from taxable expenses that were covered by allocated PPP funds. In addition, PPP loans granted are not offset against the gross taxable income. While this is technically twice as high, it can benefit some small businesses.
The Independent restaurant coalition (IRC) was impressed enough to say “thank you” in its response to the bill. However, a statement has been made claiming that it will do little to help most restaurants and bars in trouble:
“The small changes in PPP funding for independent restaurants will give Congress time to negotiate a more robust plan, and we are grateful to many of the champions in the House and Senate who fought for these changes. But make no mistake: Independent restaurants and bars will continue to close this winter with no additional relief, leaving millions more unemployed. ”
Members of the IRC campaign for their own bill RESTAURANTS Act (Real economy support recognizing the restaurant’s unique support needed to survive the law), which has already passed the house and has 52 co-sponsors in the Senate. The law provides funding for the Restaurant Revitalization Fund, which will bridge the gap between forecast sales for 2019 and sales forecast for 2020.
Extended PPP credit limits for restaurants, bars and hotels
The picturesque balcony of Harold’s Restaurant & Taproom in The Heights. Courtesy photo.
Restaurants, bars and hotels, which were particularly hard hit during the pandemic, can now pay up to 3.5 times the average monthly wage bill, instead of 2.5 times what other types of businesses might consider. The maximum loan amount is USD 2 million.
Alli Jarrett, owner of Harold’s Restaurant & Tap Room In Houston, these measures, along with other measures such as deducting the cost of personal protective equipment (PPE) for employees and facilitating social distancing, are “very good.” That said, she also believes that it is not an all-inclusive package that cures all diseases. “This is a big crisis for all cities and towns,” she said. “Restaurants and other small businesses need a long-term recovery agenda that includes long-term capital, liability protection, affordable health care and childcare for our employees.”
A cocktail and menu at Rosewater in Clear Lake. Courtesy photo.
Pasha Morshedi of Rose water, a cocktail bar in Clear Lake, expressed similar concerns about what else the industry needs – especially bars that have been dealing with repeated closings. “We really needed support,” he said. “PPP loans have been helpful. We got $ 20,000 and it covered a month of payroll. But we were closed for almost five months. In the end, we burned money that we saved for an expansion to pay our employees over that period and maintain their health insurance. No regrets, but without direct economic support, we in the service industry have no choice but to work. I would like more direct payments to staff and more accountability on PPP loans as in some cases I have not seen owners suffer the same personal losses as the staff who make money from them. “
Morshedi also stressed that given the proven success of bars responsibly selling take-away cocktails, it is a COVID-era concession that the state of Texas must maintain on a permanent basis.
100% deduction for business meals
The new law now allows 100% of the cost of business meals, including alcohol, to be deducted from taxes. Supporters of Congress as well as President Trump see the measure as a way to revitalize gastronomy. Critics call it the three-martini lunch tax break and say it too late to help many restaurants, benefits the rich and assumes that people have an expendable income that they can spend on restaurants.
The 100% business lunch deduction is not new. It was allowed well into the 1970s. During his presidential campaign in 1976, it was criticized by Jimmy Carter as a luxury subsidized by the working class. The 1986 Tax Reform Act, signed by President Ronald Reagan, lowered the deduction to 80% and was further reduced to 50% in 1993 under President Bill Clinton, where it remains to this day. The reduction in tax breaks appeared to have had little impact on the food service industry, which grew by over 50% in both countries.80s and ‘90s. During the current pandemic, when most of the state’s governors are mandating mandates, restaurants operate at reduced capacity (Most parts of Texas are at 75%), many reviewers say this means more for executives than small restaurant owners.
The tax cut on small distilleries is now permanent
On the positive side, the alcohol industry got most of what it was campaigning for, which was the Expansion of Craft Beverage Modernization and Tax Relief (CBMTRA), which was a reduced rate included in the 2017 Tax Reform Act and small craft brewers, winemakers and distilleries should help.
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. Your business has had success on all fronts since March. “We had to close the tasting room for seven months and when we reopened we had to reduce capacity.” Railean has also cut restaurant sales: “Do you know how you see the smaller menus in restaurants right now? The same goes for alcohol. The restaurants fill up with Jack Daniels and Bacardi and the little boys politely pass on. Having to pay that extra excise tax would have just killed us, ”Railean said. “We have already diversified as much as we can and put rum cakes for sale – all we need to keep going.”
Advice on distilled spirits President and CEO Chris Swonger says “I can guarantee that the artisan distillers and their staff across the country will have a glass of their finest liquor tonight and toast their lawmakers to support the struggling craft distilleries in need of economic aid. By making the lower tax rates for small distillers permanent, Congress is protecting jobs, empowering communities, and helping get those businesses back on a path of stability and growth. We look forward to the President signing this package quickly. “
Unfortunately, the distilleries that have taken action in the production of hand sanitisers and that make them available to first aiders free of charge in the event of a nationwide shortage do not receive any compensation for their time and costs, with the exception of the relaxed regulations and the tax breaks built into the CBMTRA.
While the CBMTRA is clearly good news for small breweries, winemakers, and distilleries, the industry still has a few items on its wish list. These include ending blue laws (state regulations that ban the sale of alcohol on Sundays), tariff relief (the tariff war sparked retaliatory tariffs on US exports), and allowing alcohol to be tasted in liquor stores (which is illegal in some states) ).
However, the rest of the hospitality industry continues to struggle. According to the Labor Statistics OfficeUnemployment in the food and beverage industry is 134% above the national average. More than 2.1 million jobs have been lost since March, making it the hardest hit sector in the country. Therefore the National Restaurant Association has set up one Website For proponents of the RESTAURANTS Act, but with the end of 2020 nearing its end, it is likely that Congress will not take any action on this law this year.
A development that affects Jonathan Horowitz, Founder of Convive Hospitality Consulting and former CEO of Legacy Restaurants who stated:
“The adoption of this stimulus package was a good step in getting help where it is needed. However, no one should believe that this is the answer to the problems facing the industry. Restaurants and bars will continue to suffer through 2021 until consumers feel more comfortable eating out again. Tax breaks and tax deductions are long-term benefits that will help if a business can survive long enough to take advantage of them. What is even more needed is additional, immediate, and tangible financial support to keep restaurants open and staff to work. The industry as a whole is very resilient, but no one can plan or adapt enough to weather something as disruptive as this pandemic without significant outside support. I am confident that in the new year we will do more to help the industry. “
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