in turn limits the choices of the employee and therefore is not regarded as compensation to the employee. Finally, if meal service made available to employees on the business premises of business and industry is viewed as making an important contribution to the country's energy conservation program, and we think it does, then the tax laws should be structured to encourage on-premise consumption of meals. We suggest that the effect of H.R. 907 would be to the contrary. For the reasons stated, the merchandise vending and contract foodservice management industry is opposed to the enactment of H.R. 907. Hon. DANIEL ROSTENKOWSKI, [Attachment] SOCIETY FOR FOODSERVICE MANAGEMENT, Chairman, Committee on Ways and Means, DEAR CHAIRMAN ROSTENKOWSKI: The Board of Directors of the society for Foodservice Management has voted unanimously to join the National Automatic Merchandising Association in opposing H.R. 907 which we view as extremely detrimental to the interests of our membership. The Society for Foodservice Management is the association representing the noncommercial segment of the foodservice industry, with especial emphasis on the business & industry sector. We represent all major contractors, as well as the majority of American businesses which elect to operate their own foodservice programs. We ask you to consider that the National Restaurant Association, which is composed primarily of small independent restaurant operators and national foodservice chains, does not speak for the entire foodservice industry, and that there are other interested voices which should be heard in any consideration of H.R. 907. Sincerely, PHILLIP S. COOKE, Executive Director. STATEMENT OF THE NATIONAL RESTAURANT ASSOCIATION The National Restaurant Association is pleased to present the views of its membership concerning H.R. 907. The National Restaurant Association is a business league whose almost 8,000 members consist of about 5,000 corporations and several thousand proprietorships and partnerships operating all types of foodservice establishments. Our membership includes affiliation with the restaurant associations of the 50 states which rely upon us to represent their views on issues raised by Federal legislation or regulation. We estimate that the foodservice industry in the U.S. includes over 561,000 restaurants and employs in excess of 5,000,000 people. After Government and medical and other health services, the foodservice industry is the country's leading employer. Moreover, the foodservice industry is a large employer of structurally unemployed: the current foodservice industry is the country's leading employer. Moreover, the foodservice industry is a large employer of structurally unemployed: the current foodservice industry workforce consists of 14 percent minorities and 29.1 percent teenagers. The National Restaurant Association supports legislation before this subcommittee as H.R. 907. We believe that enactment of H.R. 907 will correct a major inequity in our tax laws and will have a direct effect upon the economic health and continued solid growth of the foodservice industry. THE RESTAURANT INDUSTRY AND THE EMPLOYEE MEAL Restaurant industry profile The foodservice industry of this country consists of over 561,000 establishments. Over 388,000 of these are commercial operations and the remainder are operated by business, educational, governmental, or institutional organizations. Many of these establishments are owned and operated by small businessmen and businesswomen. According to a National Restaurant Association survey, there are approximately 8 million men and women employed in all segments of the foodservice industry, of which about 5 million are directly engaged at the establishment level. This workforce at the establishment level represents approximately 5 percent of all employed persons in the United States. The census category of eating and drinking places alone, which accounts for about 67.3 percent of total foodservice industry sales, ranks second among all U.S. industries in employment behind medical and other health services. The composition of the workforce in the industry is strongly oriented toward those segments of our society which are the most vulnerable to unemployment. The industry is labor intensive and is unique in the market it offers for unskilled, entry level employment. In weighting the economic and social effects of proposals that will increase employment in the industry, it is important to note that 65.7 percent or 3.1 million of the industry's employees are women; 29.1 percent of the industry's employees are teenagers (as compared with only 6.5 percent of all employed persons); and 14 percent are black or other minorities (as compared with only 11.8 percent of all employed persons). Since it deals in the preparation of and sale of perishable products to individuals and groups on a personal service basis, the foodservice industry's demands for capital are equally intensive. For example, in 1981 table service restaurants required an investment per seat of $1,191 where the building and land is owned and an investment of $1,675 per seat, where the building is leased. During the recent recession, profit margins for table service restaurants averaged 4.5 percent; down from 5.4 percent. Increases or decreases of sales have an immediate and substantial effect on the profit marign of our industry and on employment therein. To protect against the impact of future economic fluctuations, the foodservice industry now needs to stabilize its business to restore modest and reasonable profit margins and a steadily growing workforce. The employee meal system Section 119 of the Internal Revenue Code provides that meals furnished under certain conditions by an employer to an employee are not considered income to the employee. The cost of the meals provided by the employer may be either partially or totally borne by the employer without affecting the tax status of the employee. The critical test to be met is that the meals are furnished for the "convenience of the employer" and if so, they are tax-free. One of the conditions prescribed is that the meals must be provided on the employer's business premises, generally, in a company cafeteria. Equity under the law However, there is a major inequity under this law as it harshly discriminates against the employer who cannot provide a company cafeteria. There are hundreds of thousands of small business and even branch offices of larger companies which cannot provide on-premise eating facilities for their employees. These employers may not be able to make the capital investment required for a cafeteria. There may not physically be enough space available within the work premises to construct a cafeteria or it may be an inefficient use of work space as the employer seeks to expand his business. Finally, the cost of the cafeteria prepared and provided meal may exceed the economic capability of a small business concern. By adoption of the employee meal system this inequity toward employees and employers of small and medium size businesses can be rightfully corrected. Moreover, conceptually, the employee meal system makes sense. The motivation for providing employees a nutritious meal each day during working hours is the same for the employer who is able to provide a company cafeteria for his employees and the one who is not-enhanced worker productivity, and promotion of greater safety and health on the job. Experience in Western Europe and Latin America The employee meal system exists today in ten countries of Western Europe and in Mexico, Brazil and Argentina. The laws respecting the employee meal sytem in these countries are very similar to that proposed. The system has enjoyed considerable success with over 2 million employee meals served per day in Western Europe. Operation of the employee meal system The system is designed to allow any employer to provide his employees with an "in-kind" meal to be consumed during the work day, normally at lunch, the cost of which may be partially paid by the employer and partially by the employee for a sharing in the cost by each. The tax treatment would be the same as for the company cafeteria. Amounts contributed by the employer would not be deemed income to the employee. Of course, the employee cost participation is in after tax dollars. This meal cost-sharing would be equally available to all employees and employers. Payments of currency to the employee would not be permitted, and the employee meal would not be transferable from one employee to another or to anyone else. Only 39-988 O 85 bona-fide, employment related meals would be allowed with a specific prohibition against the purchase of liquor or tobacco. This system would enable the employer to use of the following procedures. He could contribute together with other employers in the same building or neighborhood toward the cost of a shared cafeteria operated in the same manner as the typical company cafeteria. He could establish a direct account with one or more predetermined eating establishments in the immediate vicinity of his business and allow his employees to choose any of those subscribing establishments for his meal. Only the daily amount agreed upon by the employer and employee could be spent. Thus, the value of the meal might be $4.00-$2.00 paid by the employer and not treated as income to the employee and $2.00 paid by the employee and deducted from his wages. An alternative approach could be through the use of special identification cards issued by the employer which would be presented for payment in the form of a charge to the employer's employee meal account. A final alternative would be to parallel the system most widely used in ten countries of Western Europe and Mexico, Brazil and Argentina, which relies primarily upon the use of meal vouchers or coupons of differing values. The voucher or coupon books are issued by the employer on a weekly or monthly basis and are exchanged in payment for the meal consumed at the participating eating establishment. The coupons collected by the restaurant would in turn be redeemed for payment by the employer. In summary, the participants in the system are the employer, the employee, the eating establishment and, as may be the case, an outside company which issues the vouchers or coupons. The concept is simple and straightforward. The employee meal provides equity and promotes productivity and employee health and safety. The economic benefits are substantial relative to structural unemployment and small business expansion. Revenue estimates Revenue estimates provided by the Treasury Department and Joint Committee on Taxation in 1982 which did not consider feedback revenues, show a static revenue loss of $72 million in 1987 when the system is assumed to be fully implemented. Based on the assumption used in this 1982 Treasury/Joint Tax Committee estimate that .4 percent of the then-total United States workforce of 109.7 million would participate in the employee meal system by 1987, the National Restaurant Association data shows that $339 million in sales of which $288 million represents new business for eating establishments across the country would result from enactment of H.R. 907. The National Restaurant Association estimates that the total Federal and state revenue consequence considering Federal income and employment tax revenues lost by virtue of the proposed amendment, Federal income and employment tax revenues gained from tax receipts on increased industry sales and taxes paid by new employees, and state sales taxes gained and unemployment benefits saved is an $11.1 million revenue gain overall. This gain is directly proportional to the static revenue loss assumption since it is generated by the expenditure of the exempt employer contributor. Thus, increased static revenue loss estimates would lead to increased net revenue gains to this feedback effect. Job creation Based upon an estimated $28 million of new business in the foodservice industry, attributable to the employee meal, new jobs in our industry would total 7,900 based on a 40-hour week and almost 12,000 based on the average restaurant industry work week of 27 hours. Since the current foodservice industry workforce consists of 14 percent minorities and 29.1 percent teenagers, it is likely that these new jobs will be an excellent source of employment for the structurally unemployed, a critical factor in view of the current 42% minority teenage unemployment rate. Further, as with the revenue figures discussed above, these job creation statistics are directly proportional to the revenue loss assumption and increase in tandem with those assump tions. If feedback effects are considered, the employee meal system produces even more favorable results. First, if feedback-type employment effects are considered, it is the experience of the National Restaurant Association that each additional industry job creates a second job in a related field to produce the additional food or supplies. Thus, the actual number of jobs crated overall attributable to the employee meal system could be twice the 12,000 estimated industry jobs. Second, if total feedback revenues are considered, for each additional industry job created by the employee meal system, there would be a revenue savings of $945. Enactment of H.R. 907 will not only correct an inequity in our Tax Code, it will also increase business in the foodservice industry and create new employment opportunities. STATEMENT OF HON. GUY VANDER JAGT, A REPESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN Mr. Chairman and colleagues of the Select Revenue Measures Subcommittee, over four and one-half years ago I introduced the legislation now before you as H.R. 907 to correct a long overlooked inequity in our income tax laws. Section 119, the so-called company cafeteria section of the Internal Revenue Code, presently allows the cost of meals furnished under certain conditions by an employer to his employees not be considered income to the employees and, hence, not taxable to them. One of the principal criteria under present law is that the meals be provided on the business premises of the employer, generally in a company cafeteria. This requirement harshly discriminates against those employees and employers who cannot provide company cafeterias. There are hundreds of thousands of small businesses and even branch offices of larger companies which are unable to make available on-premises eating facilities for their employees. While these employers wish to enhance their employees' productivity, health, and safety by providing a meal for them on their business premises, they simply cannot for lack of adequate space or for economic reasons as they may not be wealthy enough to afford the costs of construction and operation of a company cafeteria. In testimony before this Subcommittee on September 17, 1984, the Treasury Department expressed its concern "that the tax benefits derived from the existing statutory fringe benefits are not fairly distributed among taxpayers." Such horizontal inequity would be alleviated by enactment of H.R. 907 which would enable small and medium size businesses to offer their employees a benefit now restricted to employees of larger businesses. In these types of instances it is simple tax equity that an employer should not be denied the right to provide meals during the work day off his premises if he deems it in his business interest to do so. This bill corrects this inequity by allowing the meal to be furnished “directly or indirectly in kind”—meaning the meals may be furnished on or off the business premises of the employer but that cash may not be provided by the employer for the purchase of the meals. The concept is simple. Where a company cafeteria exists, the meals are provided there. Where it is not possible or not economically feasible for the employer to provide a company cafeteria, the meal could be consumed in a nearby eating establishment or in a shared company cafeteria. Payment for the meal could be by direct contract between the employer and a foodservice establishment with an accounting system agreeable to the parties or by the use of a coupon system. As with the company cafeteria, the plan would be available to all employees who wish to participate, and meals would be consumed only during the work day. I should also point out that this concept follows closely that allowed under the law in 10 countries of Western Europe and Latin America, including West Germany, France, and the United Kingdom. In addition to the compelling tax equity reasons for this amendment, I am greatly encouraged by the economic results forecast in connection with the implementation of this concept. Economic analyses developed by the restaurant industry and the National Restaurant Association project an increase in foodservice sales of 288 million dollars annually coupled with the creation of 12,000 new jobs in the restaurant industy. This estimate of new jobs is particularly important as they are a principal source of employment for the structurally unemployed. Foodservice industry employment today consists of 14 percent minorities and 29.1 percent teenagers. With the shockingly high current minority teenage unemployment rate of 41.7 percent, this new job market should help alleviate the severe structural unemployment problem in the United States today. Mr. Chairman, this Subcommittee and the Committee on Ways and Means have combatted discrimination in fringe benefits among employees at varying level jobs. This legislation would prevent discrimination in fringe benefits among employees of varying sized businesses. This legislation serves the interest of tax equity, small business and "the little guy" and, therefore, I urge my colleagues on the Subcommittee to report this measure favorably. I 98TH CONGRESS 1ST SESSION H. R. 1343 To amend the Internal Revenue Code of 1954 to treat mutual banks having capital stock represented by shares in the same manner as other mutual banks for purposes of the bad debt reserve deduction. IN THE HOUSE OF REPRESENTATIVES FEBRUARY 8, 1983 Mr. LOWRY of Washington introduced the following bill; which was referred to the Committee on Ways and Means A BILL To amend the Internal Revenue Code of 1954 to treat mutual banks having capital stock represented by shares in the same manner as other mutual banks for purposes of the bad debt reserve deduction. 1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 3 That (a) subparagraph (B) of section 593(b)(2) of the Internal 4 Revenue Code of 1954 (relating to addition to reserves for 5 bad debts) is amended by striking "which is not described in 6 section 591(b)" each place it appears. |