Restaurants need tax relief that supports business investment

Restaurant operators are facing myriad business challenges, including higher food and labor costs, but chief among them is the impending expiration of several tax-relief provisions.

To help manage the 29% increase in food prices and 31% rise in labor costs, operators are having to rely on such tax-relief provisions as full expensing, qualified business income deductions, and the ability to deduct interest on business debt. However, restaurant operators are anxious those provisions will soon be rolled back, resulting in tax hikes they can’t afford, says Aaron Frazier, the National Restaurant Association’s vice president of Public Policy. 

Many of them depend on debt to finance their restaurant remodels, equipment purchases, and expansions, he adds.

“The expiration of tax-relief measures, many of which will evaporate in 2026, would result in a huge tax increase for even the smallest of restaurants,” he says. “That could make staying in business more difficult and profitability practically impossible. As it is, four in 10 restaurants aren’t profitable right now. We need tax relief to succeed.”

The tax provisions enacted in 2017 as part of the Trump Administration’s Tax Cuts and Jobs Act and set to expire include:

• Full expensing. This is used to invest in new kitchen equipment, furniture, or catering and delivery vehicles.
• Business interest expense (EBITDA) deduction. This provision can be used to help offset the cost of repaying loans for upgrading a kitchen or building out a patio.
• 20% deduction for pass-through income. This is used to preserve equity and attract new capital investment.
• Work opportunity tax credit. This helps restaurants hire, train, and develop employees facing barriers to joining the workforce.
• Estate tax repeal. This prevents a crippling tax bill when ownership of a multigenerational restaurant is passed on.
• Family and medical leave credits. These credits are used to help employers extend leave benefits for employees raising families or managing medical issues.

“These credits, deductions, and exemptions not only help operators invest in essential business activities but also preserve the amount of cash on hand for payroll and employee benefit expenses,” he says.

Frazier also suggests operators learn more about and get involved in policy discussions on these issues, and says they’ve got to start asking their lawmakers to support a tax code that bolsters business-friendly policy. Following are his four pieces of advice on how to begin.

1. Know your numbers. It’s important for operators to understand the financial impact of the expiring tax provisions on their businesses.
2. Consult your financial expert. Always contact an accountant or financial planner for a clear understanding of how any changes would affect your bottom line.
3. Attend industry conferences and events. Join us at our Public Affairs Conference, where you’ll learn more about the issues and can coordinate advocacy efforts.
4. Engage with your lawmakers. Learn how to advocate for the restoration of tax-relief measures that would highlight for lawmakers the real-world consequences on their restaurants and local communities.

“Don’t be shy when talking to your lawmakers about the taxes you pay the federal government,” Frazier says. “Tell them how restoring the full expensing helps with capital equipment purchases that make your kitchens more efficient. Explain that the work opportunity credit allows you to hire more people and invest in skill building. Make it about real dollars and let them know these tax policies will have real-world consequences at home.”

Attend the National Restaurant Association’s Public Affairs Conference, April 1–3 in Washington, D.C. Learn more here