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Philly tax break just a drop in the bucket for struggling restaurants

The amount of relief for restaurants will vary, depending on the size of their dining spaces.

Stacked tables and benches sit along the wall at Lucatelli's in Center City Philadelphia on April 29, 2020.
Stacked tables and benches sit along the wall at Lucatelli's in Center City Philadelphia on April 29, 2020.Read moreHEATHER KHALIFA / Staff Photographer

A new Philadelphia tax break won’t give substantial relief to restaurants struggling to stay afloat during the pandemic, saving most eateries just a few hundred bucks, owners said.

Mayor Jim Kenney said last week that bars and restaurants won’t have to pay the city’s Use and Occupancy Tax on their unused dining space after he shut down indoor dining last month to slow the resurgent spread of the coronavirus. The tax break covers the six-week period of the city’s latest round of restrictions, from Nov. 20 through Jan. 1. The businesses must still pay the tax on other operational space, such as kitchens.

The amount of relief for restaurants will vary, depending on the size of their dining spaces. Restaurant owners said they expected tax breaks ranging from $200 to $700 per establishment. Mike Dunn, a city spokesperson, said some larger restaurant facilities may save thousands of dollars. Joncarl Lachman, chef-owner of Noord, guessed he’d save about $400, or enough to pay a staffer’s health insurance for one month.

“It’s a very kind gesture,” said Rob Wasserman, owner of Rouge, Audrey Claire, and Twenty Manning Grill. “But it’s a pebble within the pond that we’re living in right now.”

City officials are “exceedingly aware that this provides only a modicum of relief,” Dunn said in an email. But the tax break is significant as it will cost the Philadelphia School District about $10 million, he said, as the district receives all of the funds from the Use and Occupancy Tax.

“While we do not expect that particular change to be enough to save a struggling restaurant operator, every bit helps,” Dunn said.

Dunn declined to speculate whether the city would extend the tax break if safety restrictions last longer than Jan. 1. He said the city is exploring ways to provide more relief to hard hit industries.

The restaurant industry has been battered by the pandemic. The Philadelphia region lost 93,000 leisure and hospitality jobs from August 2019 to August 2020, the largest drop in employment among industries tracked by the Bureau of Labor Statistics. As of Nov. 25, nearly 45% of the region’s leisure and hospitality small businesses have closed, either temporarily or permanently, according to Opportunity Insights, a Harvard-backed research group.

The Use & Occupancy tax imposes a 1.21% levy on the assessed value of a property used for business purposes, with an annual exemption of $2,000, or $167 per month. Property owners or landlords collect the tax from tenants and pay it to the city.

The city is offering other tax help too. It will allow firms to get an early refund on their Business Income and Receipts Tax by amending their returns, if they overestimated their 2020 payments. The city also postponed the due date for a $500 trash collection fee to June 30. Previously, half of the fee was due at the end of the year.

Philadelphia restaurants were without indoor dining for about six months from March to September, but the Use and Occupancy tax break wasn’t available then. The exemption was offered this time around because the federal government has failed to provide more funding for small businesses, which was available during the previous indoor dining ban, Dunn said.

Nicole Marquis, owner of HipCityVeg, Bar Bombon, and Charlie Was a Sinner, said the tax break would save her about $200 per restaurant and is “definitely not going to help us stay in business.”

“Although we appreciate the mayor’s effort here, we need something bigger,” she said.

What restaurant owners said they really need is another relief package from Congress. Lawmakers and White House officials are still negotiating over what should be included in the long-overdue relief bill.

In the meantime, Marquis has been lobbying city and state officials for more help. She is the founder of Save Philly Restaurants, an advocacy group of 250 bars and restaurants in the region established in response to the pandemic. She’s called for grants to winterize outdoor dining spaces and relief on rent.

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One of her requests — a 180-day ban on landlords evicting restaurants — passed City Council and was signed into law Dec. 9, according to a city spokesperson. The measure, spearheaded by Councilmember Bobby Henon, would allow restaurants to work on rent deferment with landlords, Marquis said.

“They’re still going to have to pay some large bills when this is all over,” she said. “And right now, it’s not clear how, so we have a lot more work to do.”

Staff writer Michael Klein contributed to this article.