Analysis

Hospitality Industry Has Stiff Competition For Virus Relief

By Alan K. Ota
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Law360 (June 12, 2020, 4:52 PM EDT) -- Hospitality industry advocates are seeking new tax incentives backed by President Donald Trump to help in the recovery from the COVID-19 pandemic, but they will have to beat out other proposals vying for inclusion in forthcoming relief legislation.

Dealers in masks prepared for the June 4 reopening of the D Las Vegas hotel and casino. The nation's hospitality industry — restaurants, casinos, hotels and theme parks — must compete with other interests for inclusion in coming pandemic relief legislation. (AP)

House Ways and Means Chairman Richard Neal, D-Mass., and Senate Finance Chairman Chuck Grassley, R-Iowa, have said they will vet a range of business tax proposals for emerging economic stimulus plans, but they have not taken a stand on incentives to help the nation's restaurants, casinos, hotels and theme parks recover from a drop in business attributable to the pandemic.

Grassley stressed that proponents of initiatives framed for the hospitality industry may need to compete with backers of other popular ideas as he works on a potential Senate GOP alternative to the House-passed $3 trillion Health and Economic Recovery Omnibus Emergency Solutions Act.

Grassley noted Trump has called for both a tourism tax incentive and a payroll tax cut, which would go beyond and possibly supersede a payroll tax deferral enacted in the Coronavirus Aid, Relief and Economic Security Act or CARES Act in March that allows  businesses to remit 2020 payroll levies in two installments in 2021 and 2022.

"He has got to make up his mind whether he wants a holiday for payroll taxes or a holiday for tourism," Grassley told Law360.

The White House did not immediately respond to a request for comment.

The hospitality industry's push for tax incentives coincides with similar campaigns by advocates for other businesses. For example, manufacturers have made the case for expanding temporary full expensing of business equipment and for delaying the start in 2022 of five-year amortization of research and experimentation costs.

With such competing interests in mind, Treasury Secretary Steven Mnuchin pointed to the needs of restaurants, hotels and companies involved in the travel and leisure sector during a Senate hearing Wednesday. He urged lawmakers to focus on "areas that have been most impacted" in the economy by the outbreak of the novel coronavirus, which causes COVID-19, a respiratory disease. 

"You can't get hotel capacity back up unless you hire workers," Mnuchin said.

Trump outlined his vision for delivering a lifeline to the industry in a May meeting with restaurant executives and industry leaders that included a potential payroll tax cut and an "explore America" tax credit to cover an as-yet-unspecified amount of family domestic travel expenses.

"That's a big deal," Trump said, referring to the proposed tourism tax incentive.

Trump also called for expanding deductions for business meals under Internal Revenue Code Section 274 and allowing deductions for business entertainment. The 2017 Tax Cuts and Jobs Act  kept in place a 50% deduction for business-related food and beverages, as long as they are not lavish or extravagant, and eliminated business deductions for entertainment, including sporting events, concerts, golf outings and recreational trips.

Several GOP members of the Senate Finance Committee said Trump's vision for boosting hospitality businesses could get some traction if lawmakers hear from constituents about problems in the sector during the peak summer tourist season.

"That's a good idea," Sen. Tim Scott, R-S.C., told Law360, referring to the "explore America" proposal.

"We had 1,700 restaurants shuttered," Scott said. "It's a massive challenge for our state."

Sen. Patrick Toomey, R-Pa., a member of the Finance Committee, said a doubling of the 50% business meal deduction was warranted.

"Now would be a good time to do it. It's tougher than it's ever been in the restaurant business," Toomey, a former restaurateur, told Law360.

Rep. Kevin Brady, R-Texas, ranking member on the Ways and Means Committee, has said he is continuing talks with administration officials, waiting to see details of their tax proposals as he works on a House GOP stimulus package. He has said the plan will include permanent expensing of business equipment and structures, and broader incentives for research and development.

For their part, Democrats say they have heard from constituents about the hospitality industry's coronavirus-related challenges, but some have questioned whether the incentives backed by Trump and industry advocates would be effective in the current environment.

Sen. Robert Menendez, D-N.J., a senior member of the Finance Committee, said he was waiting to hear specific proposals from the hospitality industry and was aware that some advocates "believe they should have some unique help because of the nature of the industry itself." But he questioned whether incentives aimed at boosting walk-in customers would be effective during the pandemic.

"If people aren't sure that it's safe to go out to eat, getting a business meal deduction is not going to help," Menendez told Law360.

Both Menendez and Sen. Catherine Cortez Masto, D-Nev., another Finance Committee member, took a neutral stance on new incentives for the hospitality industry, including Trump's proposed "explore America" tax credit. Both lawmakers said they leaned in favor of measures aimed at controlling the spread of the virus and relief provisions such as those in the CARES Act.

Despite the cool response from some Democrats, advocates for the hospitality industry are trying to follow up on several recent victories. For example, they pushed with other business advocates for the newly enacted Paycheck Protection Program Flexibility Act and for the so-called retail glitch fix in the CARES Act that allows immediate expensing of interior upgrades in commercial buildings, or qualified improvement property, instead of a 39-year depreciation period.

Now, proponents are hoping that operators of restaurants, hotels and other hospitality businesses and their employees can rally support for putting incentives like those endorsed by Trump in the next coronavirus response measure. Other ideas being considered include measures aimed at helping businesses cover operating expenses and coronavirus-related costs, and a reduction of the 6.3% payroll tax for employees.

Roger Dow, president and chief executive officer of the U.S. Travel Association, which represents travel-related businesses and state and local tourism offices, said in a written statement that new incentives would help "restore jobs in every corner of the nation." His group has proposed a 50% tax credit, capped at $4,000 per household, for qualified U.S. travel expenses through 2021, including meals, lodging, transportation, recreation and entertainment. It has also called for full deductions for business meal and entertainment expenses for at least three years, followed by permanent 50% deductions.

Chip Rogers, president and chief executive officer of the American Hotel and Lodging Association, a business trade group, has made the case for similar tax incentives.

"The hospitality industry is in a fight for survival," Rogers said in a written statement.

Aaron Frazier, the National Restaurant Association's director of health care and tax policy, said advocates for his group, representing businesses in more than 500,000 locations, were reaching out to lawmakers and aides by telephone and in online chats to discuss several tax proposals.

"Bipartisanship is important. It's an all-hands-on-deck moment," Frazier told Law360. "We need lawmakers to be on the forefront of innovative solutions, including changes to the tax code."

--Editing by Robert Rudinger and John Oudens. 

For a reprint of this article, please contact reprints@law360.com.

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