Coronavirus

Trump Tax Deduction Proposal Could Boost Some Las Vegas Restaurants

Upscale restaurants at casinos are among the eateries that could benefit under President Donald Trump’s proposal to increase deductions for meals and entertainment on corporate taxes, according to several experts on gambling trends.

President Donald Trump Sunday suggested deductions be increased for meals and entertainment as a way to help the restaurant sector. (Image: CNN)

Trump made the suggestion during a press conference on Sunday. He is attempting to give new life to the restaurant sector, especially after the coronavirus pandemic levels off and customers will once again dine in at restaurants in Las Vegas and elsewhere.

Under a tax reform called the Tax Cuts and Jobs Act of 2017, Congress cut out the corporate tax deduction for entertainment. Businesses were also told they could only deduct half of the cost of meals for clients.

Now, many restaurants nationwide face an uncertain future after restrictions came statewide or locally that eateries could only sell take-out or delivered meals because of the coronavirus pandemic.

Like restaurants, casinos in Las Vegas are also struggling. Some could run out of cash.

Trump’s tax proposal needs to be evaluated by the Treasury and Labor departments. It may require Congressional action, too.

The president wants to keep restaurants open as some owners ponder going out of business. He also wants them to keep paying their employees, even though tens of thousands of workers at bars and restaurants have already been let go.

The restaurant business has been, probably, one of the hardest-hit industries,” Trump said Sunday about the impact on various sectors from the outbreak. “I have directed my staff to use any and all authority available to give restaurants, bars, clubs incentives to stay open.”

“You are going to lose all these restaurants, and they are not going to make it back …,” the President added. “We’re going to go to deductibility so that companies can send people to restaurants.”

Under current federal tax rules, corporations can deduct 50 percent of the cost of meals involving employees, as well as current or possibly future customers or clients, if the meals are not “extravagant,” The Hill reported, citing 2018 information provided by the IRS.

“Under the law that implemented Trump’s tax cuts of 2017, the deduction for meals with clients, customers, and vendors that benefit your business was reduced from 100 percent to 50 percent, and most entertainment expenses became non-deductible,” Anthony Cabot, Distinguished Fellow of Gaming Law at UNLV’s Boyd School of Law, further explained to Casino.org.

Jeffrey B. Edwards, a partner with Piercy, Bowler, Taylor & Kern, a Nevada accounting firm, said the 2017 act occurred during a flourishing economy.

“Overall, restaurants did not notice a decrease in business activity and restaurant catering, and the change did not materially impact special events,” Edwards told Casino.org. “However, that was in a booming economy. With the uncertainty of the long-term effects COVID-19 will have on the economy, businesses will undoubtedly be mindful of the best way to use monetary resources.”

“Restaurants are now worried that resources/funds related to entertainment expenses will not be used as before the crisis, given that they are nondeductible,” Edwards added. “Should the nondeductibility of business-related entertainment expenses be rolled back, our restaurants will be able to compete with other industries that support business growth.”

Full Deduction Will Have ‘Tremendous Impact’

Trump said the full deduction “will have a tremendous impact and maybe keep them open. Don’t forget, some are closing right now despite the fact they could be open in the not-too-distant future.”

“We expect that, but there are some that aren’t gonna be able to get open, and we want to make sure they do,” the President added. Before making the proposal, Trump spoke with noted chef and restaurateur Wolfgang Puck. He and others in the restaurant business want to see steps taken by the government to aid the sector.

Premium Restaurants Possibly Helped the Most

“After this crisis ends, allowing full deductions may help to some extent,” Cabot said. “The importance of restaurants varies greatly between casinos.”

“In some casinos, the restaurants are there primarily as a convenience to casino patrons as opposed to a separate draw. These casinos are unlikely to benefit from a tax change,” Cabot said. “In others, the restaurants are a premium experience and draw both casual and business customers.”

The restored deductions may help if they “persuade some companies to increase this portion of their marketing budget. At the same time, the casinos and their restaurants need to overcome both the perception of the health risks in social environments like dining rooms and companies that have significantly impacted marketing budgets,” Cabot said.

Stephen Miller, director of UNLV’s Center for Business and Economic Research, further points out that business-related meals are now limited, given the shutdown.

Once the virus comes under control and we return to more normal times regarding business activity, the deductibility of meals should boost demand at the margin,” Miller told Casino.org. “It is not a huge deal, but a small additional contribution to total demand for meals at restaurants.”

Before closing, casinos in Las Vegas typically had diverse sources of revenue. Beyond meals, they included entertainment, gaming, shopping, clubs, parking, resort fees, and other sources, Miller said.

But without patrons and guests coming to the casinos, the diversity does not help the bottom line, he cautioned.

The Rev. Richard McGowan, a finance professor at Boston College who closely follows gambling trends, also told Casino.org, “If a business could write, as a business expense, entertaining clients, it will help casinos.”

McGowan added that Las Vegas “is a popular place to hold conventions. This change would allow firms to treat future customers to a free meal while at the convention.”

“It will certainly help, especially restaurants that are in hotels where businesses could expense their meals as well as other expenses. Even local restaurants that are close to business centers will benefit,” McGowan said about Trump’s proposal.

He points out, too, that in Las Vegas, slightly more than 50 percent of casino revenues come from non-gambling activities. So, restaurants financially “are very important,” McGowan said.

It certainly would [be] a way to save some of the smaller restaurants that have been really hurt by the virus shutdown,” McGowan added.

Since dine-in service at Nevada restaurants was shuttered for 30 days by a March 17 directive by Governor Steve Sisolak, many owners are fearful about the future of their establishments. “The general feeling is an overwhelming sense of fear,” James Trees, who operates Esther’s Kitchen and Ada’s, told the Las Vegas Review-Journal.

To help restaurants financially, Las Vegas last week released a plan that temporarily lets customers who pick up their to-go meals at the curbside to also purchase alcohol with the meal. It is limited to those eateries that already have an alcohol permit. Henderson announced a similar plan.

Restaurants in Nevada, except for take-out, were closed on March 17 by an order from Nevada Gov. Steve Sisolak, who also closed all non-essential businesses — including casinos — for 30 days.

Ed Silverstein

Gaming Law, Tribal Gaming, Crime, Gaming Research----An award-winning journalist with credits ranging from the Associated Press to American Lawyer Media, Ed joined the Casino.org news team in 2019 with decades of legal reporting expertise under his belt. His past reporting and editing assignments include Cowles Business Media, Columbia University Press, the Connecticut Post, and Southern Connecticut Newspapers, Inc. Besides the law and its application to the gaming industry, Ed’s areas of expertise span business, courts, crime, politics, education, and state and local government. With an undergraduate degree from the University of Connecticut (where he now lives), and master’s degrees from Harvard and Yale, Ed’s professional awards include recognition from the New England Press Association and New England AP News Executives. Email: ed.silverstein@casino.org

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Ed Silverstein