Updated March 31 with new information
On March 11, 2021, President Biden signed into law the American Rescue Plan Act of 2021 (the Act). In addition to various updates to and expansions of existing programs, the $1.9 trillion stimulus package includes the creation of the Restaurant Revitalization Fund, a new grant program to help restaurants impacted by COVID-19. Read on for an introduction to the new fund and its rules – who is eligible, what funds can be used for, and more – as well as other highlights of the Act relevant to the hospitality industry.
Restaurant Revitalization Fund
In a tremendous win for the hospitality industry, the Act created a $28.6 billion fund to be administered by the Small Business Administration (SBA) specifically for restaurant and alike operators. As with the Paycheck Protection Program (PPP), applicants must make a good-faith certification that “the uncertainty of current economic conditions makes necessary the grant request to support the ongoing operations of the eligible entity.”
These grants are excluded from taxable income, and all expenses paid with grant proceeds are deductible for federal tax purposes.
The first $5 billion has been earmarked for “eligible entities” (defined later) with not more than $500,000 of 2019 gross receipts. Further, for the first 21 days, all grants will be prioritized for small businesses owned and controlled by women, veterans, or other socially and economically disadvantaged groups (as defined in sections 3(n), 3(q), and 8(a)(4)(A) of the Small Business Act, respectively).
“Eligible entities” are defined as:
- A restaurant, food stand, food truck, food cart, caterer, saloon, inn, tavern, bar, lounge, brewpub, tasting room, taproom, licensed facility or premise of a beverage alcohol producer where the public may taste, sample, or purchase products, or other similar place of business in which the public or patrons assemble for the primary purpose of being served food or drink; including an entity located in an airport terminal or that is a Tribally-owned concern.
- A group of affiliated entities with 20 or fewer locations as of March 13, 2020.
- The Act defines an affiliated business as a business in which:
- “an eligible entity has an equity or right to profit distributions of not less than 50%,” or
- “an eligible entity has the contractual authority to control the direction of the business”
- The Act defines an affiliated business as a business in which:
Entities that are NOT eligible:
- A group of affiliated entities with more than 20 locations as of March 13, 2020, regardless of whether those locations do business under the same or multiple names
- Publicly traded companies
- State or local government-operated entities
- Entities with pending or approved grants under Section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, known as Shuttered Venue Operators Grants (SVOGs)
Calculation of grant
An eligible entity may receive a grant equal to the amount of its “pandemic-related revenue loss.” Pandemic-related revenue loss is generally determined by subtracting 2020 gross receipts from 2019 gross receipts. An entity’s pandemic-related revenue losses are reduced by any PPP loans (first- and second-draw) received. Total grant amounts are limited to $10 million for each affiliated restaurant group and further limited to $5 million per physical location.
- For entities not open for the entirety of 2019, average monthly receipts multiplied by 12 may be used for both 2019 and 2020.
- If the entity opened during the period beginning on Jan. 1, 2020, and ending on the day before the date of enactment, the grant is calculated by taking the entity’s eligible payroll costs incurred by the entity and subtracting any gross receipts received.
- For an entity that is not yet open at the date of application, the grant is the amount of eligible payroll costs incurred.
SBA reserves the right to implement an alternate formula for any of the above-mentioned scenarios.
Eligible expenses for purposes of this program consist of:
- Payroll costs
- Principal and interest payments on mortgage obligations
- Maintenance expenses, including construction to accommodate outdoor seating, as well as walls, floors, deck surfaces, furniture, fixtures, and equipment
- Supplies, including PPE and cleaning materials
- Normal food and beverage inventory expenses
- Covered supplier costs
- Operational expenses
- Paid sick leave
- “Any other expenses that the Administrator determines to be essential to maintaining the eligible entity”
If an eligible entity does not use all grant funds or permanently ceases operations on or before the last day of the Covered Period – defined as beginning Feb. 12, 2020, and ending Dec. 31, 2021, or an alternative date to be determined by the Administrator that is not later than two years after the date of enactment – any remaining funds must be returned to the Treasury.
Paycheck Protection Program (PPP)
The Act provided an additional $7.25 billion of funding to the Paycheck Protection Program. The application period is currently scheduled to close on May 31, 2021, extended from March 31, 2021. (Visit our full PPP overview for more on the Act’s changes to the program.)
Targeted EIDL Advances
An additional $15 billion was allocated to the EIDL Advance program. Targeted EIDL Advances are excluded from taxable income and all deductions preserved for federal taxation purposes.
Extension of Pandemic Unemployment Assistance and Compensation
The Act extended federal pandemic unemployment assistance through Sept. 6, 2021. It had been set to expire on March 14, 2021.
Family and Sick Leave Tax Credits
Family and sick leave credits originally introduced by the Families First Coronavirus Response Act (FFCRA) were expanded and extended to Sept. 30, 2021.
Employee Retention Credit (ERC)
The Act extended the availability of the existing Employee Retention Credit for eligible employers (for each quarter, a separate $10,000 of qualified wages and health plan expenses with a 70% ERC) from the first two calendar quarters of 2021 only, to all of 2021, resulting in a potential maximum ERC of $28,000 per employee for the entire 2021 calendar year.
What does CohnReznick think?
While the enactment of the Restaurant Revitalization Fund and extension of various programs are welcomed news for the hospitality industry, further direction from the Treasury and SBA is necessary and expected to implement the provisions of the new Act.
As we wait for applications to open for the Restaurant Revitalization Fund, eligible entities are encouraged to gather financial information demonstrating their pandemic-related revenue loss and to apply as soon possible. Note that according to SBA, businesses interested in these restaurant grants will not need a Dun and Bradstreet (DUNS) number or an account in the System for Award Management (SAM.gov).
Businesses that were previously approved for a PPP loan but decided to return a portion or the full amount of their PPP loan proceeds should consider whether to re-apply for their originally approved maximum loan amount.
Subject matter expertise
Let’s start a conversation about your company’s strategic goals and vision for the future.
Please fill all required fields*
Please verify your information and check to see if all require fields have been filled in.
CohnReznick Tax: Alerts and Webinars
The C-Suite Dashboard Keep Your Business Moving Forward
Coronavirus Resource Center
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.