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COVID-19 and the Hospitality Industry

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The state of the hospitality industry in Washington State changed drastically with the order issued by Governor Inslee on March 15 temporarily shutting down dining rooms of restaurants and bars and closed entertainment and recreational facilities. It was a proclamation that resulted in layoffs and numerous businesses closing or scrambling to come up with methods to scale back substantially and /or alter their operations.

About a week later, Governor Inslee issued the “Stay Home, Stay Healthy” mandate ordering all non-essential businesses to close until at least April 6 (now extended to May 4), further complicating operations for hospitality businesses. In light of these challenges, we have seen companies persevere by supporting one another, helping the community through charitable giving and finding creative ways to continue operating. Additionally, City, State and Federal legislators have been working diligently to provide relief for individuals and companies. Relief measures applicable to hospitality companies include:

Tax Deadline Extension

The Treasury Department and the Internal Revenue Service have provided tax filing relief in response to COVID-19 by extending the federal tax filing and payment deadlines from April 15 to July 15, 2020. With the deadline pushed back, companies are better able to maintain cash flow needed for critical operations.

Families First Coronavirus Response Act

The Families First Coronavirus Response Act (FFCRA) mandates employers with fewer than 500 employees provide sick leave and expanded family and medical leave related to COVID-19. Employers are eligible for a payroll tax credit for qualified family medical leave and paid sick leave wages. For our complete analysis of the Act, click here.

Coronavirus Aid, Relief, and Economic Security Act

On March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed to provide more than $2 trillion in stimulus to businesses and individuals in the U.S. Key provisions applicable to hospitality companies include:

  • Employee retention tax credit– As an alternate to the paycheck protection loan, businesses that are forced to completely suspend or reduce operations by at least 50% due to COVID-19 may qualify for a refundable credit against payroll taxes. The credit may be more advantageous than the paycheck protection loan for hospitality companies in certain situations.
  • Paycheck Protection Program (PPP) – The CARES Act allocated $350 billion to provide Small Business Administration (SBA) loans to businesses with fewer than 500 employees as an incentive to maintain payroll during the pandemic crisis. Businesses in the hospitality and food service industries with multiple locations are able to apply the 500 employee rule on a per location basis. The loan may be forgiven on a tax-free basis if the funds are used to pay payroll, rent, utilities or mortgage interest, and if companies maintain or quickly rehire employees and uphold their salaries. Banks are taking applications for these SBA loans now. Click here for our summary report on SBA loans.
  • Tipped employee wage adjustment – As a result of the closure of dining rooms and other related services that would traditionally allow employees to earn tips, companies are able to base their payroll costs for servers on the wages that are currently being paid to employees instead of the wages earned waiting tables prior to the pandemic. These wages can be used in calculating the SBA loan forgiveness.
  • Qualified improvement property fix – In a drafting error, the Tax Cuts and Jobs Act of 2017 eliminated the depreciation category for 15-year qualified restaurant improvement property requiring certain assets to be depreciated using a 39-year life which negatively impacted the tax liability for restaurant owners. The CARES Act reversed this error by providing qualified improvement property a 15-year life and allowing for 100% bonus depreciation when the asset is placed in service. Retroactive application to January 1, 2018 may provide an opportunity for companies to amend their 2018 tax returns and receive a tax refund.

For additional information on the CARES Act, see Berntson Porter’s summary.

Other Measures:

While companies wait for additional guidance and funds from the federal government’s CARES Act, there are a few things that companies can do now.

  • Come up with a business plan – Evaluate if you are able to continue operating or if you need to close down temporarily. Some restaurants have been able to convert to delivery and take-out orders and some hotel owners have considered offering lodging to government agencies as temporary homeless shelters, quarantine sites or possible alternate care facilities. However, these solutions may not be an option for all companies. The National Restaurant Association has provided the following tips for temporarily closing a restaurant if it becomes necessary in the current environment.
  • Review your insurance policy – Although most business insurance policies will not have reference to or provisions for a “pandemic” there may be relief through business interruption clauses. Consult with your insurance broker and your attorney on the terms of your policy and the best course of action.
  • Defer real estate tax payments – Several Washington state counties, including King and Thurston, have postponed the April 30 payment deadline for individual, residential and commercial taxpayers who do not pay property taxes through a mortgage lender or financial institution to June 1 without interest or penalty. The extension applies to real property and personal property taxes. See Berntson Porter’s reference guide for more information.
  • Manage inventory – To encourage social distancing, Washington’s liquor board relaxed one of its rules, allowing businesses to sell alcohol in certain circumstances. Consider offering alcohol to go with food for curbside or pickup orders. If you have excess inventory on hand or inventory that may expire before business resumes, consider anything that you can return or donate to food banks for a charitable deduction. The charitable deduction limit has increased from 10% of adjusted taxable income to 25% under the CARES Act for corporations.
  • Care for employees – Inform employees of critical roles that will continue operating and their options and rights under the Employee Pay, FMLA and Washington State Employment Security Department guidance. Additionally, employees in the restaurant industry that have been impacted by COVID-19 may be eligible for grants available through the Restaurant Employee Relief Fund (RERF) operated by the National Restaurant Association Educational Foundation or through The Plate Fund launched by the Schultz Family Foundation and dozens of Seattle restaurant owners for individuals in King County.
  • Communicate with others – Reach out to key stakeholders including customers, vendors, bankers and other parties to let them know your plan. Use media outlets to stay connected with customers.

Berntson Porter Is Your Trusted Advisor

We can take comfort in the fact that this Coronavirus pandemic will eventually end and people will gather together again to dine, shop, and travel. Now is a time to take care of yourself and your family, be creative and seize the opportunities that are available. Your Berntson Porter team is here to help you through these challenging times. Connect with your Berntson Porter representative and continue to follow our COVID-19 updates.