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The COVID-19 pandemic has been especially tough on the restaurant industry — as of Dec. 1, 2020, more than 110,000 bars and restaurants had closed for business in this country. According to the National Restaurant Association, more than 2.5 million jobs have been lost since March 2020. The American Rescue Plan Act of 2021m which was signed by President Joe Biden on March 11, 2021, sets aside $28.6 billion for beleaguered restaurant operators. These funds are generally available through Dec. 31, 2021. Following is a brief summary of the grant program, which is in addition to the Paycheck Protection Program created last March.

Restaurant Revitalization Fund

The American Rescue Plan Act establishes a Restaurant Revitalization Fund which is available to businesses operated for the primary purpose of serving food or drinks, including restaurants, food trucks, food carts, caterers, bars, breweries, tasting rooms and wineries. In addition, restaurants operated in an airport terminal or tribal-owned lands are also eligible.

Eligibility

Eligible businesses are limited to applicants who do not have: (1) more than 20 locations operating as of March 13, 2020, including locations operating under different names and locations; (2) a majority owner or control person that is publicly traded; (3) a shuttered venue operator’s grant from the SBA; or (4) a business operated by a state or local agency.

Grant Amounts

The grants are intended to provide relief for pandemic-related revenue losses not reduced by Paycheck Protection Program loans. When calculating revenues, an eligible business should treat the amount of any PPP loan it received as part of its post-pandemic gross receipts. The total amount of grant is limited to (a) $5 million for each physical location and (b) $10 million in the aggregate.

The act provides four different ways of calculating an applicant’s “pandemic-related revenue loss” and total grant amount, depending on the time period during which the restaurant was in operation.

1. If the applicant was operational for all of 2019, its “pandemic-related revenue loss” is the amount by which its total gross receipts generated in 2019 exceeded its 2020 gross receipts. It would be eligible for grant funding equal to the amount of its “pandemic-related revenue loss” that exceeds the amount of its PPP loans.
2. If an applicant was not in operation for all of 2019, its annualized “pandemic-related revenue loss” would be 12 times (A) the average monthly amount of its gross receipts for the portion of 2019 during which it was operational minus (B) the average monthly amount of its gross receipts for 2020. Any PPP loans are then be deducted from that amount to arrive at the applicant’s eligible grant funding.
3. For applicants operation between Jan. 1, 2020 and the date that the Restaurant Revitalization Fund is enacted, its “pandemic-related revenue loss” is the amount by which (A) its “Eligible Expenses” (see below) exceeds (2) its gross receipts during the time it has been in operation. Only those applicants that were in operation on Feb. 15, 2020 need to reduce their revenue loss by any PPP loans because only businesses in operation on Feb. 15, 2020, would have been eligible to participate in the PPP Loan Program.
4. Grants are also available to businesses that are in operation after the enactment of the Restaurant Revitalization Fund. Those applicants may consider the amount of any “Eligible Expenses” incurred prior to and on the date of enactment to be its “pandemic-related revenue loss” and therefore its eligible grant amount.

The legislation permits the Small Business Administration to establish an alternative formula for businesses that were operational for only a portion of 2019 and for businesses that became operational after Jan. 1, 2020.

Eligible Expenses

Grants may be used for the following eligible expenses:

1. Certain payroll costs including compensation, cash receipts or the equivalent, vacation and permitted leave, severance payments and costs related to employee benefits. Payroll costs may not include an amount of employee compensation identified as qualified wages for purposes of the employee retention tax credit or COBRA premiums.
2. Payments of rent, principal or interest on mortgage obligations.
3. Utility payments and operational expenses.
4. Maintenance expenses including construction to accommodate outdoor seating such as walls, floors, deck services, furniture, fixtures and equipment.
5. The purchase of supplies such as PPE.
6. Food and beverage expenses that are within the scope of normal business operations before Feb. 15, 2020.
7. Payments to suppliers for goods that are essential to its operations under supply contract orders or purchase goods.
8. Paid sick leave and other expenses that the SBA may allow.

Restaurant revitalization grants will not be subject to federal income tax but the expenses paid with grant proceeds, if ordinarily deductible as business expenses will continue to be deductible for federal income tax purposes.

Any grant amount not expended by Dec. 31, 2021 generally must be returned to the SBA.

Grant Priority

During the first initial 21-day period when grants are available, priority is given to small business that are owned by women, veterans, or socially or economically disadvantaged individuals or economically disadvantaged tribes.

Timing

Depending on when costs are incurred, it can impact the timing of a grant.

1. Grants may be used for costs incurred during the period beginning on March 1, 2020 and ending on Dec. 31, 2021 or, if a supplemental grant is awarded, June 30, 2022.

2. Non-supplemental grant amounts that are not expended on or before one year after disbursement must be returned to the SBA or, if a supplemental grant is awarded, the period is 18 months.

Documentation

A grantee must make a “good faith certification” that the “uncertainty of current economic conditions makes necessary a Grant to support the ongoing operations” of the grantee. The SBA is to “increase oversight” and may require an eligible person or entity that receives any grants to retain records that document compliance with the grant requirements, such as employment records for the four-year period following receipt of each grant and other relevant compliance records for the three-year period following the receipt of each grant.

Conclusion

While the coronavirus outbreak has impacted nearly every segment of the economy, the restaurant sector has been especially hard hit, with revenues for many restaurants and bars coming to a standstill. These stimulus programs provide a welcome relief for restaurants and other related facilities that were closed as a result of the pandemic.

Phil Jelsma is a partner and chair of the tax practice team at Crosbie Gliner Schiffman Southard & Swanson (CGS3) — a commercial real estate law firm. He is recognized as a leading joint venture and tax attorney with a 30-year background in real estate exchange transactions, syndications, nonprofit corporations and international tax planning.

The full article can also be read in the Daily Journal and in the Daily Transcript (subscription required).