After months of negotiations, lawmakers were finally able to come to terms on a second coronavirus relief bill, and the $900 billion measure was passed into law at the very end of 2020. That relief bill includes rental assistance, direct stimulus payments, boosted unemployment, and a second round of Paycheck Protection Program (PPP) loans for hard-hit small businesses.
Though the first round of the PPP saved millions of jobs and prevented countless business closures, those loans aren’t particularly valuable for the restaurant industry, which has been notably hard-hit during the pandemic. PPP loans are eligible for 100% forgiveness, provided that at least 60% of their proceeds are used to cover payroll expenses.
But restaurants aren’t payroll-heavy businesses. In fact, they’re notorious for underpaying servers who rely on tips to comprise the bulk of their wages. As such, a second round of PPP loans may not be enough to prevent widespread restaurant closures this winter.
A second provision of the new stimulus bill, however, is designed to give restaurants a much-needed revenue boost. The question is: Will it work?
Will more robust tax deductions drive up restaurant sales?
Currently, companies are allowed to claim business meals as a deductible expense on their taxes, but they’re limited to 50% of their costs in that category. The new stimulus bill allows companies to deduct 100% of meal costs for 2021 and 2022. The idea behind this measure is to entice companies to support local restaurants by offering a more generous tax incentive.
But whether it will actually work is to be determined. For one thing, many restaurants are shut down or operating at limited capacity and can only welcome so many business clients at once. Secondly, many companies are having employees work from home and canceling in-person meetings, making it difficult to justify the expense of restaurant meals. Finally, the relief bill, in its current form, does not specify whether the option to deduct business meals at 100% of their cost applies to takeout, catering, or delivery. That distinction could make a difference.
Of course, any lifeline restaurants can get right now is better than none. But while some restaurants may see an uptick in revenue as a result of this measure, let’s also not forget that companies are cutting costs during the pandemic, so an increase in business meals may not be in the budget. That’s bad news for restaurants as well as the commercial landlords who rely on them to pay rent.
As of early December 2020, an estimated 110,000 restaurants had already permanently closed their doors in the course of the pandemic, per the National Restaurant Association. And given the current state of the coronavirus outbreak, we could see many more join their ranks as 2021 progresses.
The Millionacres bottom line
Commercial landlords will need to prepare to deal with vacancies as restaurants succumb to the circumstances they’ve been thrown into. While a more generous tax break for business meal deductions may help a small percentage of restaurants stay afloat, chances are, it won’t do much for the industry as a whole.