Association to Congress: 55% of Restaurants not Eligible for new PPP loans with 50% Threshold
Washington, D.C. (Aug. 3, 2020) – The National Restaurant Association today sent a letter to House and Senate leadership praising many components of the latest coronavirus response legislation, and urging them to find bipartisan consensus on two issues that could have considerable impacts on the short- and long-term survival of the restaurant industry.
The Paycheck Protection Program (PPP) has been a lifeline for many restaurants. The Senate HEALS Act proposes to allow small businesses with fewer than 300 employees and that can demonstrate a 50% loss in quarterly gross receipts over the previous year to apply for a second round of PPP loans. At this threshold level, 55% of restaurants will not be eligible. In the letter the Association appeals for a 20% threshold, which would make 430,000 restaurant owners eligible for a needed second loan. Such a change would ensure that restaurants with a low gross revenue loss, but still facing bankruptcy, would be eligible.
“The PPP got thousands of restaurants through the spring shutdown, but most are now open under strict business limitations and every month are wrestling with their bottom line,” said Sean Kennedy, executive vice president for Public Affairs. “A second round of PPP will make or break these restaurants, so we encourage a bipartisan agreement to lower the qualifying threshold so that more of the struggling restaurants in our communities can have a fighting chance.”
The Association is also warning Congress that without their action, restaurants across the country will soon be on the hook for thousands of dollars in unexpected tax bills. Because of an Internal Revenue Service (IRS) decision made weeks after restaurants started accepting their PPP loans, normally deductible business expenses are no longer deductible if the business pays the expense with a PPP loan that is subsequently forgiven.
These tax liabilities are unexpected and a shock to thousands of restaurant operators. For example, a restaurant owner in Indiana who accessed PPP loans for his five small locations is facing a $182,000 tax burden. A Texas operator with six locations projects his tax bill will be more than $1.3 million.
“This undermines the survival intent of the PPP program by imposing an unexpected tax liability of 25%–35% on forgiven loans,” said Kennedy. “Restaurants that obtained a PPP loan to support employees and pay bills should not be facing unexpected, unintended tax burdens that further depletes their cash on hand. These PPP expenses should not face a massive ‘clawback’ in the form of federal taxes.”