New York State has enacted a $35 million Restaurant Return-to-Work Tax Credit Program to provide an incentive to restaurants and other hospitality businesses impacted by the COVID-19 pandemic to bring staff back to work and to increase hiring. Businesses that meet the qualification requirements are eligible for a tax credit of $5,000 per new employee hired, up to $50,000 per business.

Eligible businesses can begin applying through a “Fast Track option” after Aug. 31, 2021, and may want to consider applying as soon as they are able: Once the funding is fully allocated, the credit will no longer be available. The date the required information is submitted to the Empire State Development program will control in determining when the business is allocated funds.

Read on for key information about the program, and see the state’s program page and FAQ for full details.

Eligibility

Initially, the Program is open to eligible businesses located in New York City, or in an area outside of New York City that was designated by the New York State Department of Health as an Orange or Red Zone for at least 30 consecutive days. In addition to New York City, qualifying locations include certain areas of Chemung, Erie, Monroe, Onondaga, Orange, Rockland, and Westchester Counties.

Businesses that can be eligible include full- and limited-service food and beverage establishments that provide significant accommodations for on-premises dining and/or consuming alcoholic beverages, including:

• Bars, taverns, and nightclubs primarily engaged in preparing and serving alcoholic beverages for immediate consumption;
• Full-service restaurants primarily engaged in providing food to patrons while they are seated;
• Limited-service restaurants where patrons select items and pay before eating; and
• Breweries, wineries, cideries, and distilleries with a tasting room meeting a specified gross receipts test.

In order for a business described above to be eligible, it must:

• Be independently owned and operated (franchises are not eligible);
• Have fewer than 100 employees;
• Have had a 40% decline in either gross receipts or employment, which may be shown by comparison of the second or third quarter of 2019 and the same quarter in 2020; and
• Achieve a net employee increase – add at least one full-time equivalent employee – over the designated growth period discussed below. The only employees counted as added are those working in New York City or other qualifying locations.

If multiple businesses are owned and operated under the same business entity, then all the businesses will be considered in determining whether the eligibility criteria are met. If multiple restaurants are owned and operated under different, but related business entities, then each business entity will be considered separately in terms of qualifying for participation. “In either case, a business entity must have at least one restaurant location in New York City or in a qualifying former Orange or Red Zone to qualify for the Program,” the FAQ states.

New York State also provided the following clarifications in response to CohnReznick queries:

1. If a restaurant was not in operation in 2019, it will not be eligible. 

2. If a business entity is owned by a private equity or venture capital fund, it would be disqualified from being considered “independently owned and operated.”

3. If a parent company owns 100% of multiple LLCs that each has its own EINs, each LLC is eligible to apply.

4. If a business owns some restaurants in New York and some outside of New York, only the New York locations need to be assessed to determine if there is a net increase in employees. 

Other requirements relate to compliance with health laws, past due taxes, and active licenses.

How to claim the credit

There are two methods for claiming the credit.

1. Under the so-called “Fast Track Option,” eligible businesses may claim the credit after Aug. 31, 2021, if the business can demonstrate a net employee increase of at least one full-time equivalent employee (works at least 35 hours per week) measured from April 1, 2021, to Aug. 31, 2021, as compared with the average number of full-time equivalent employees during the period Jan. 1, 2021, through March 31, 2021. Copies of a number of different types of documents – such as 2019 and 2020 income tax returns, evidence of business location, schedule of ownership, and draft Q3 Form NYS-45 – must be submitted to the Empire State Development Program webpage by Sept. 15, 2021, to claim the credit under this alternative. If the business is issued a credit certificate, it will then need to submit it to the NYS Department of Taxation and Finance by Nov. 15, 2021.
2. Under the other alternative, the credit can be claimed on the business’ 2021 income tax return; the measurement period is April 1, 2021, to Dec. 31, 2021; and the required documents need to be submitted to the Empire State Development Program by Jan. 14, 2022.

There is an eligibility questionnaire on the Empire State Development Program webpage that a hospitality business that believes it is eligible should submit. If business has a location in a qualifying area and meets the eligibility requirements, it will be invited to submit an application via email. 

Proposed regulations have been adopted, which are available on the webpage.

What does CohnReznick think?

In a continuous effort to help full- and limited-service food and beverage establishments impacted by the COVID-19 pandemic, the state of New York introduced the new Restaurant Return-to-Work Tax Credit. Eligible businesses located in New York City, or in an area outside of New York City that was designated by the New York Department of Health as an Orange or Red Zone for at least 30 consecutive days, will be able to apply first. As the funding might be limited, the “Fast Track Option,” available after Aug. 31, 2021, might be the most reliable way to apply for this credit.

Contact

Yelena A. Belaks, CPA, Partner

646.254.7486

Stan Solomon, Director, State and Local Tax Services

646.254.7409 

_{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.}