If you have been following the news the last few weeks, you know there has been a lot of debate over the latest stimulus bill from unemployment benefits to minimum wage changes. Now that the House and Senate have concluded their debates and agreed upon a final stimulus bill called the American Rescue Plan Act of 2021, it is expected that President Biden will sign the bill into law later this week. This is great news for the restaurant industry as this stimulus bill sets aside $28.6 billion in grants for them through the Restaurant Revitalization Fund. Let’s dig into the specifics of the Restaurant Revitalization Fund.
What are the eligibility requirements?
- Eligible businesses include foodservice and drinking establishments like restaurants, bars, caterers, breweries, taprooms, and tasting rooms.
- Excludes restaurant chains with more than 20 locations including affiliated companies as of March 13, 2020.
- Affiliation is defined as more than 50% interest in an affiliated business or contractual authority to control the direction of the affiliated business.
- Excludes publicly traded businesses and state or local government-operated businesses.
- Excludes businesses that are applicants of the Shuttered Venues Operators grant program.
- Businesses must certify their current uncertain economic conditions.
- Excludes any permanently closed businesses.
What is the covered period?
- The covered period is from February 15, 2020 to December 31, 2021.
How is the grant calculated?
- For businesses opened in 2018 or earlier, grants are calculated by subtracting a business’ 2020 gross receipts from its 2019 gross receipts and also subtracting first and second draw PPP loans received.
- For businesses opened during 2019, grants are calculated by taking the average monthly gross receipts of 2019 multiplied by 12 minus the average monthly gross receipts of 2020 multiplied by 12 and also subtracting first and second draw PPP loans received.
- For businesses opened in 2020, funding is equal to the eligible expenses incurred before the date of enactment (being March 12, 2021, pending date of enactment) minus any gross receipts received.
- For businesses not yet open, funding is equal to eligible expenses incurred before the date of enactment (being March 12, 2021, pending date of execution).
Let’s look at an example of a business with one store that opened in 2018:
|2019 Gross receipts||$1,000,000|
|2020 Gross receipts||( 750,000)|
|Less PPP1||( 62,500)|
|Less PPP2||( 87,500)|
From the example, the restauranteur experienced a $250,000 reduction in gross receipts during 2020 compared to 2019 and received PPP loans totaling $150,000, which must be subtracted from the $250,000 reduction to arrive at the grant amount of $100,000.
How can the grant be spent?
The use of funds may be used during the covered period for the following expenses incurred as a direct result of, or during, the COVID-19 pandemic:
- Payroll costs
- Mortgage – both principal or interest (prepayments not allowed)
- Rent (prepayment of rent not allowed)
- Maintenance – includes construction to accommodate outdoor seating and other expenses
- Supplies (including PPE and cleaning products)
- Food and beverage
- Supplier costs
- Operational expenses
- Paid sick leave
Because the covered period begins February 15, 2020, eligible businesses can go back and retroactively apply eligible expenses against these grant funds. Should the eligible business not spend the funds or permanently cease operations on or before the last day of the covered period, those funds shall be returned to the Treasury.
Are businesses still eligible if they have received a Paycheck Protection Program (PPP) loan, Economic Injury Disaster Loan (EIDL), or employee retention credits (ERC)?
- Yes. Businesses are still eligible for this grant; however, the PPP loans already received will be subtracted from the eligible grant total.
- Eligible payroll costs do not include qualified wages used to obtain the ERC. Wages used to calculate the ERC cannot be paid with grant funds.
How will the grant be disbursed?
- The fund will prioritize socioeconomically disadvantaged businesses with businesses owned by women (see section 3(n)), veterans (see section 3(q)) or socially/economically disadvantaged groups (see section 8(a)(4)(A)) for the first 21 days of grant applications. A self-certification of eligibility will need to be submitted. The hyperlinks will take you to the definitions within the Small Business Act.
- $5 billion of the $28.6 billion total is reserved for restaurants with $500,000 or less in gross receipts in 2019. The remaining $23.6 billion will be allocated to eligible entities of different sizes based on annual gross receipts.
- If there are funds available after 60 days, grant eligibility will be open to larger businesses regardless of annual gross receipts.
- Grants will be awarded up to $5 million per location, or $10 million to operations with multiple locations. $10 million is the maximum amount for a restaurant-affiliated group.
Is the grant taxable?
- Amounts received as grants are not included in the gross income of the business that receives the amounts.
- No deduction or basis increase is denied, and no tax attribute is reduced by reason of the gross income exclusion.
- In the case of a partnership or S corporation that receives a Restaurant Revitalization Grant, any amount of the grant excluded from income is treated as tax-exempt income for purposes of Code Secs. 705 and 1366.
What questions don’t seem to be answered as of now?
- Will there be enough funding for all eligible businesses?
- If an allocation is based on the level of gross receipts, how will this be rolled out?
- When does the application process begin?
- What is the definition of gross receipts? We are assuming gross receipts have the same definition as gross receipts used for the PPP.
- How will a business apply for the grant?
- Will there be a forgiveness-type process similar to PPP? We suspect there will be a similar process to PPP.
- Can payroll costs used for PPP forgiveness also be eligible payroll costs for the grant funds? Double dipping is likely not going to be allowed.
What are other benefits of the American Rescue Plan Act of 2021 relating to restaurants?
- Restaurants also stand to benefit from the stimulus payments of $1,400 to eligible taxpayers as noted with prior stimulus checks provided.
- The unemployment benefits will be extended with a weekly increase of $300 through September 6, 2021, which was a point of contention in passing the bill. This extra benefit of $300 per week is believed to help those in need, but also not deter workers from seeking employment because unemployment benefits were better than actually working.
- Funding for PPP will increase by $7.25 billion. If you have not applied for your first or second draw PPP loan and have an economic need, now is the time to apply before PPP closes on March 31, 2021.
- An additional $15 billion would be added to the EIDL for businesses in need of financial relief through a disaster loan. To be eligible, businesses would need to have suffered a loss of at least 50% of revenues and are struggling to meet a payroll of 10 or fewer employees.
This Restaurant Revitalization Fund is a step in the right direction for helping the struggling restaurant industry specifically, smaller restaurant companies. To attend our upcoming webinar on March 17th exploring updated guidance regarding the Employee Retention Credit and the Restaurant Revitalization Fund, click here.
Stay tuned as we keep abreast of the latest developments of the American Rescue Plan Act of 2021. If you have any questions, please contact Dustin Minton.
Article written by:
Dustin Minton, CPA, MBA
Director, Assurance & Business Advisory Services