Yesterday (February 23) Ben Wogsland, director of government relations for Hospitality MN, along with restaurateurs Erik Forsberg, who has three downtown Minneapolis restaurants including Devil’s Advocate, and Tony Boen, director of operations for Grandma’s in Duluth, testified before the House Tax Committee in support of a bill that would exempt restaurant equipment from sales tax.
House File 921, authored by Rep. Dave Baker, also would provide tax relief on certain equipment purchased in 2020-2021 in response to Covid-19.
Wogsland told legislators on a Zoom conference call that restaurants should be considered under the category of manufacturer, which is exempt from paying sales tax on equipment. The restaurant industry, he pointed out, is in dire need of tax breaks due to the number of invoices that are piling up while they are closed or have reduced dining-in capacity due to state mandates.
“Restaurants manufacture meals,” he said, and yet they are the only category of manufacturers to pay the sales tax on their equipment purchases.
Rep. Joe McDonald, a Republican who represents district 29A, pointed out that restaurant chain Leeann Chin filed a lawsuit against the state a number of years ago, claiming they were a food manufacturer, which they won. “And the state did not change the law at that time,” he said.
Erik Forsberg, who also owns restaurants in the Rochester area, added numbers to their testimony. When the pandemic first started, he added PPE equipment, including barriers, at a cost of roughly $1,800 per restaurant, as well as ionizers to improve air quality for around $10,000 per restaurant. That equaled about $6,000 in sales tax for the three downtown stores. In addition, he said, an oven to bake bread for sandwiches costs around $10,000, and has to be repurchased every three to five years— at a higher sales tax rate than other areas because he also pays an entertainment tax downtown.
As food manufacturers, he said, restaurants should be exempt. “We take a raw material and create a finished product,” he told the representatives.
Tony Boen, who pays his sales tax in Duluth, said it is going to take “a lot of work to claw back,” along with added costs for menu redevelopment, rehiring and new equipment. Over the past 10 years, “we spent $10,000 a year per store on keeping up with replacing equipment,” he said, adding that passage of this bill will be helpful in starting over. And after all, he pointed out, it’s not like they don’t already pay significant sales tax on their food and liquor.
The bill is currently still in hearings.