Over the last three weeks, the Small Business Administration (SBA) has posted in its Knowledge Base responses to many questions (i) about the Restaurant Revitalization Fund (RRF) Grant Program (“Program Questions”) and about how to use the SBA RRF grant application website. The 105 Program Questions that have been posted to date address a wide variety of topics, from fundamental (What is an EIN?) to more technical (Which line on my tax returns do I use for gross receipts?) to industry-specific (Can I buy a new food truck with RRF funds?).
This article will focus on what the Knowledge Base teaches us about how the SBA is applying the RRF statute to breweries and brewpubs.
Why the focus on breweries and brewpubs? Because breweries and brewpubs present a problem of statutory interpretation with respect to the RRF. It appears that the RRF Grant Program is primarily intended for places of business in which the public or patrons assemble for the primary purpose of being served food or drink. Many breweries and brewpubs are, at least in part, places of business where the public assembles for the primary purpose of being served drink and, often, food. Furthermore, they are listed in the statute among the entities eligible for RRF Grants (see Restaurant Revitalization Fund Summary). However, most breweries and brewpubs also prepare bottled or canned alcoholic beverages for sale on-site and for distribution to and sale by third parties. Some breweries do nothing but distribute packaged brews and do not serve food or drink to the public at all. It seems that breweries with no business serving the public directly would not qualify for RRF Grants. Thus, while breweries and brewpubs are included in the statue as among the entities eligible to benefit from the Program, they are arguably valid RRF beneficiaries only when they serve the public to some extent in a manner similar to restaurants. Only then does the RRF Grant fulfill the Congressional purpose of benefiting businesses that serve food and/or drink to the public that were hard-hit by pandemic restrictions.
If we keep that purpose in mind, then we can imagine a test for whether a brewery or brewpub is eligible for a grant from the RRF based on how like a restaurant it is. Restaurants are the ideal RRF grantee, because the business of most restaurants is entirely based on serving food and drink to the public. On the other end of the spectrum is the pure brewery, that does nothing but distribute packaged beverages and serves no food or drink to the public. A brewpub is somewhere in the middle of the spectrum of restaurantiness, and we could imagine that whether it is a valid RRF grantee depends on how close it is to the restaurant or the pure brewery.
The SBA has interpreted the RRF as including breweries and brewpubs – as well as other businesses that have distribution operations, such as bakeries and wineries – only when at least 33% of their gross receipts are from onsite sales to the public. Thus, according to the SBA, a brewery or brewpub only has to find itself â…“ of the way along the spectrum from pure brewery to restaurant to qualify.
This 33% test presents problems of application that have been addressed in the Knowledge Base.
For instance, let’s imagine brewer, Four Saisons, with a large distribution operation and a successful but relatively small brewpub restaurant. Gross receipts from the distribution operation make up 85% of the total business, dwarfing the gross receipts from the brewpub. One question that might come up is whether the owner can consider the two operations as separate businesses and apply for an RRF for the brewpub only.
The SBA has addressed a similar question in its Knowledge Base:
We are a microbrewery with income from taproom, wholesale, and outside events. Our overall gross receipts did not decline but the gross receipts from our taproom have declined. Can I use just the receipts from my taproom?
The SBA’s response is “No. All gross receipts from your microbrewery, taproom, wholesale, and outside events must be included in your funding calculation.” So Four Saisons should include its gross receipts from the brewery and the brewpub in its 33% calculation.
This leads in nicely to a another, similar question that the SBA has addressed in its Knowledge Base:
If the basis for my eligibility is 33% of gross receipts due to on-site sales to the public, when calculating my award, do I have to count the gross receipts from my entire operation or just the gross receipts from onsite sales to the public?
Here the applicant appears to have determined already that it passes the 33% test based on its gross receipts from its entire operations and wants to know if it calculates the award based on the same gross receipts operation (for the entire operation) or on the gross receipts from the sales to the public only.
You may be able to guess the SBA’s response, given its response to the microbrewery, quoted above. The SBA takes the position that “When you are qualifying for RRF funding on the basis that your operation’s “gross receipts” is at least 33% on-site sales to the public, you must calculate your award using all of the gross receipts from your [entire] operation.”
Why is this important? As the SBA points out in the following example, basing gross receipts on the entire operation or on on-site sales to the public only can determine whether the business is eligible for a grant:
A brew pub had at least 33% of gross receipts in 2019 consisting of on-site sales to the public. The gross receipts of on-site sales to the public was $100,000, and the total gross receipts of the business was $200,000. The brew pub would calculate its award using $200,000 for its 2019 gross receipts.
If the same brew pub’s 2020 gross receipts was $250,000 with on-site sales to the public consisting of $90,000, the brew pub would calculate its award using $250,000 as its 2020 gross receipts.
The SBA goes on to note that “although on-site sales to the public declined in 2020, the brew pub’s overall gross receipts increased, which means the brew pub is not eligible for an award.”
Let’s return to Four Saisons for a moment. What if the brewery and brewpub operations had different EINs? As viewed by the SBA, the answer to that question will depend on whether Four Seasons applied for a PPP loan consolidating all the EINs:
You must apply using the EIN for the entity that received the First Draw PPP loan. You must aggregate your calculations for your separate locations that are eligible for RRF. You may not include gross receipts (or eligible expenses, if using Table 3 from the application) from locations that are not eligible for RRF.
However, there is an exception: If your locations file taxes under a parent company’s tax returns, you must apply under the parent company’s tax identification number, and you must include gross receipts and/or PPP loans from eligible entity types/locations (for example, restaurants). You must also include PPP loans (but not gross revenues) received by any business that reports revenue through the parent company, regardless of business type.
The SBA also addresses the question of whether you can exclude certain locations when you have “multiple locations that each have their own tax identification number but taxes are filed under the parent company tax identification number.” You can certainly guess the answer to this question, based on the SBA’s previous response:
No. You must include gross receipts and/or PPP loans from eligible entity types/locations (for example, restaurants) that report revenues to the parent company.
You must also include PPP loans (but not gross revenues) received by any business that reports revenue through the parent company, regardless of business type.
Presumably, however, if Four Saisons has separate EINs, has not been granted a consolidating PPP loan, and doesn’t file its taxes on one parent return or on a consolidated basis, then the application process would be undertaken separately for each separate organization. This is, however, unlikely to be the case. Nevertheless, the facts in the Four Saisons example above should specify that the brewery and brewpub either use one EIN or, if not, file their taxes on one return for the parent organization or on a consolidated basis.
Once you’ve figured out what businesses to consider when figuring out your gross receipts, and what gross receipts to consider when determining your grant, you’ve come a lot closer to understanding where you land on the spectrum of restaurantiness for purposes of the RRF.