Taxes, Tips And Their Effects On Foodservice

Let me discuss taxes and tips. Our friend Mike Posternak, Principal at PBAC Associates based in New York, alerted Jan, our News Editor, and me to a provision of the recently passed tax bill that eliminates completely the remaining 50% deductibility of entertainment expenses. He has it on good authority from a couple of tax and CPA firms, which he shared with us. Jan immediately wrote the folks at the National Restaurant Association for their take. That was several weeks ago. As I write this Feb. 10, she has yet to hear back.

Those of you that have been around as long as I have will remember the brouhaha when the deduction was lowered to 50% from 100%. That happened in the famous 1986 tax reform. NRA was going bonkers at that time, as was most of the industry. I recall that both Technomic and NPD have told me over the years that 80% of fine dining spending is business related.

Mike is understandably concerned about what elimination of the deduction could do to the viability of restaurants in New York City and other major urban areas, which are already facing a labor and labor-cost crisis. This won’t be good for golf, urban and other private clubs either. We’ll let you know when we hear back from NRA; they were big backers of the recent tax bill.

One of the reasons they were big backers is probably because of the provision that allows immediate expensing of capital expenditures, rather than the 15 accelerated or 39 regular years of amortization that was available. Now, this really could help operators justify capital spending. We’ll do some digging on that, too. I’d like to check with some of our chain and dealer friends and see what they think. My only concern is that everyone is worried about overcapacity in the market. But it really could induce existing operators to upgrade.

Speaking of the labor crisis, NRA has been supporting a Department of Labor rule change that would allow foodservice employers to pool tips, ostensibly so they could share front-of-house tips with back-of-house and other employees. Sounds great, except there is no provision in the rule that requires employers actually share them. A number of groups fear the measure will take billions of dollars out of the pockets of foodservice employees. You can read a New York Times opinion piece that cites some of the research at It doesn’t seem to be designed to help the labor crisis. As I wrote a few months ago about my friend with the small chain of pizza/pasta restaurants, who are we going to find to cook in foodservice kitchens, since few other than immigrants—yes, both legal and illegal—seem to be willing to do most of those jobs?

Sometimes the Federal government giveth, other times it taketh away.


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