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Could a temporary sales tax exemption save New York restaurants?

  • Nov 6, 2020 | Gail Cole


The impact of COVID-19 on New York restaurants has been devastating. Could a weeklong sales tax exemption on restaurant food and drink save them?

A bill introduced in the New York State Senate on October 14, 2020, seeks to create a limited sales tax exemption for the sale of food and drink at restaurants and taverns. State sales tax would not apply to qualifying sales for a seven-day period. Municipalities with a population of 1 million or more could opt to exempt qualifying sales from local sales taxes, too.

Food and drink sold by fast food chains would not qualify for the exemption. The bill defines “fast food chains” as large chains with multiple locations nationally that are limited service restaurants where customers order at the counter and pay in advance.

If the optimistically named Save our New York state restaurants Act (S9050) is enacted, this sales tax holiday would start on the first Sunday occurring 30 days after the effective date of the bill.

Sales tax exemptions, even temporary ones, tend to be popular among consumers. However, it’s hard to imagine how exempting certain restaurant food and drink from state and some local sales taxes for one week would save an industry that’s been gutted by the pandemic.

According to the Office of the New York State Comptroller, New York City had 23,650/contentSSSS restaurants in 2019. They provided 317,800 jobs, or about one in 12 of the city’s private sector jobs, paid $10.7 billion in wages, and made nearly $27 billion in taxable sales. By April 2020, NYC restaurants employed just 91,000 people, and taxable sales were down by 71%.

Easing social distancing restrictions has helped, as has allowing outdoor dining. Restaurant employment in New York City rose to 174,000 jobs in August 2020 — an improvement, but still only 55% of its level in February. The coming of winter threatens to eliminate those gains, though New York City Mayor Bill de Blasio is allowing outdoor dining to continue indefinitely. New York City restaurant owners are now scrambling to find heat lamps and creative ways to protect outdoor diners from the elements.

Statewide, the outlook for restaurants is perhaps even more dire. More than 63% of restaurants surveyed at the end of August by the New York State Restaurant Association said they were likely or somewhat likely to close by the end of 2020 without a comprehensive relief package for restaurants.

The proposed one-time sales tax holiday could cheer New York diners, but it’s unlikely to have a lasting impact on the restaurant industry. It would also reduce state and perhaps local sales tax revenue at a time when it’s sorely needed.

Learn about sales tax holidays in other states.

Sales tax rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Gail Cole
Avalara Author Gail Cole
Gail Cole is a Senior Writer at Avalara. She’s on a mission to uncover unusual tax facts and make complex laws and legislation more digestible for accounting and business professionals.