H.B. 2789, introduced Thursday, would allow licensed food and beverage establishments to retain sales tax revenue collected while the state restricts seating capacity due to the pandemic. Under the bill, restaurants and bars could file an application with the state Department of Revenue to convert the unremitted sales tax revenue into a matching grant. If the application was approved, the unremitted taxes wouldn't be considered funds of a public body.
Democratic Gov. Tom Wolf's administration issued an order July 15 that lowered the seating threshold for restaurants and bars to 25% from 50% of capacity amid a rise in cases of the novel coronavirus, which causes the respiratory illness COVID-19. Like most states, Pennsylvania first suspended all dine-in restaurant service in March after the onset of the pandemic.
The bill's primary sponsor, Rep. Gary Day, R-New Tripoli, told Law360 on Friday that he views the legislation as a short-term investment in the state's restaurant sector that would stave off a larger reduction in revenue if restaurants were to shutter due to a lack of government relief. He added that he believes the benefits of using the unremitted sales taxes as an infusion of cash to restaurants and bars would outweigh any detriment to the state's coffers.
"Although it's a little bit now, it preserves the economic impact of this industry in Pennsylvania for years to come and keeps them in businesses," he said. "If we lose businesses, then we will be at $0 of sales tax revenues from those businesses."
Certain technical aspects of the bill, such as how often businesses would apply to convert the unremitted sales tax revenues into a grant, still need to be worked out. Day said he'd prefer that the revenue conversion take place in line with when a business normally reports and files its taxes as a matter of administrative ease. However, he said he'd be flexible with those elements of the legislation if it were to move forward in the General Assembly.
The bill was referred to the state House Finance Committee on Thursday. Day said lawmakers are currently on a break and are scheduled to return in September, but may be called into session later this month. If the bill is enacted, it would take immediate effect.
John Longstreet, president and CEO of the Pennsylvania Restaurant & Lodging Association, told Law360 on Friday that the legislation has the trade group's backing because most restaurants run on slim profit margins and it isn't viable for them to operate at 25% capacity.
If the capacity restrictions aren't loosened and the government doesn't offer any financial relief, Longstreet said the association estimates up to 7,500 of the state's 26,000 restaurants could permanently close.
"Restaurants need all the help they can get," he said. "There's probably not enough money in Pennsylvania to save the restaurant industry, but every little bit helps."
Longstreet said the association has advocated for sales tax relief since the onset of the pandemic, and noted that the trade group also supports another bill introduced this week that would temporarily suspend sales and use tax collection for restaurants, hotels and bars. Any cash flow assistance that is offered to the beleaguered industry would help restaurants and bars remain solvent until the health crisis ends, he said.
Chuck Moran, executive director for the Pennsylvania Licensed Beverage and Tavern Association, which represents small taverns and restaurants in the Keystone State, told Law360 on Friday that the organization was reviewing the bill but has generally supported legislation that would provide financial relief to its members.
"Pennsylvania small-business taverns have been the tip of the spear in this COVID-19 battle," Moran said. "We believe the government needs to provide both a survival and recovery package."
However, Trevor Monk, a spokesperson for the Pennsylvania Department of Revenue, told Law360 that while Wolf has expressed support for providing relief to the restaurant and bar industry, the tax agency "has concerns with both the mechanism and the source of funding envisioned in this legislation." Monk added that the department will keep an open dialogue with lawmakers if the bill proceeds to keep them apprised of its fiscal impact.
According to preliminary figures the department provided to Law360 for the current fiscal year, Pennsylvania bars and restaurants have remitted almost $207.3 million in sales taxes in April through July, down from approximately $333 million for the same period in 2019.
Several Democrats, who are the minority party in both legislative houses, have co-sponsored the bill, but none of the Democratic House leadership signed onto the legislation.
A representative for House Minority Leader Frank Dermody, D-Cheswick, did not respond to a request for comment Friday.
--Additional reporting by Jaqueline McCool. Editing by Neil Cohen.
Update: This story has been updated with a response from the Pennsylvania Department of Revenue.
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