The coronavirus (COVID-19) outbreak has had an immediate impact on businesses and more repercussions are to come, particularly for restaurants, hotels, food distributors, retailers, and other vendors that service the hospitality industry. Below are some potential solutions that can assist hospitality owners with cashflow in the coming months.
Defer Tax Payments
Both the federal and state governments have issued guidance regarding extended due dates for paying certain taxes, which could help business owners temporarily preserve some of their cashflow. Below is summary of the extended due dates:
Internal Revenue Service
- Individuals and corporations have until July 15, 2020 to file and pay any income taxes that are owed, including 2020 first quarter estimated tax payments
District of Columbia
- Filing of sales tax returns and payment of the sales tax collected for the months of February and March has been extended until July 20, 2020
- Business owners classified as a “hotel” or “motel” have until June 30, 2020 to pay the first half of their 2020 real property taxes
- Individuals and business owners have until July 15, 2020 to file and pay any income taxes owed, including 2020 first quarter estimated tax payments
- Tax returns and payments of taxes involving sales tax and income tax withholdings for the months of February, March, and April don’t have to be filed and paid until June 1, 2020.
- Individuals and business owners now have until June 1, 2020 to pay any tax balances owed. Tax returns are still currently due May 1, 2020, but Virginia grants an automatic extension.
Alternative Methods to Generate Revenue
With many hospitality businesses being forced to close, owners and vendors should be creative in ways to generate revenue.
Retail and distribution owners can generate additional revenue by selling inventory through online sales.
Despite Maryland, Virginia, and the District of Columbia forcing restaurants to close, restaurant owners can conduct delivery, carryout, and drive-thru sales. Maryland issued an order that restaurants, bars, distilleries, and wineries must hold a license to manufacture or sell alcoholic beverages with food deliveries and pickups. The District of Columbia is mandating that any sales of alcohol must be in conjunction with the sale of food and the business owner must register and receive confirmation from the Alcohol Beverage Regulation Administration (ABRA). Registration can be completed online on the ABRA’s Website. In Virginia, restaurants and eateries with a valid license to sell beer and wine on-premises can sell beer and wine to-go in sealed containers.
Something outside the box that could generate a solid revenue stream for hospitality owners is to sell items such as toilet paper, paper towels, and hand sanitizers. Breweries and distilleries across the country are currently using their equipment, trucks, and warehouse space to distribute and deliver these high-demand items that are currently in low supply.
SBA Disaster Assistance
The small business administration (SBA) is providing Disaster Recovery Loans in response to COVID-19. The Economic Injury Disaster Loan would be applicable to business owners that have suffered economic injury.
The SBA financing would provide a small business owner in a designated disaster state or territory up to $2 million of financing. These loans can be used to overcome the temporary loss of revenue and can be used to pay fixed debts, payroll, accounts payable, and other bills. The financing comes with an interest rate of 3.75% for small businesses without credit available elsewhere and can repaid over 30 years.
It is highly recommended that business owners apply for these loans as soon as possible, as there will be high demand for these loans and it is unclear how much funding will be made available by the federal government.
Assistance from the Landlord and Vendors
Business owners that lease their space should discuss payment options with their landlords. Given the closure of their business or the prospect of substantially reduced income in present day, tenants could request that landlords offer rent abatement or deferral of rent payments. Both the District of Columbia and Maryland stated in their respective emergency relief bills that tenants cannot be evicted for unpaid rent or have their utilities shutdown for unpaid bills during this time.
While this is a very difficult time for business owners, especially in the hospitality industry, these action items can be taken to help alleviate some of the lost profitability that will come as a result of the coronavirus pandemic. Aronson will continue to monitor COVID-19 and keep you updated on additional disaster assistance relief that could be made available by the federal and local governments, as well as other important updates that impact your hospitality business.
Our tax specialists are available for consultation on this issue for restaurants, hotels, or food distributors. Please contact Aaron Boker or one of our hospitality tax advisors at 301.231.6200 for more information.