LEGISLATIVE UPDATE

FEDERAL ISSUES

The "Tip" Police
A recent court ruling upheld the federal government&Mac226;s authority to assess restaurant owners payroll taxes for employees with unreported tips. The U.S. Court of Appeals ruled that the formula used by the IRS to calculate unreported tips and an employers payroll tax liability is legal.

The IRS formula assesses an employer FICA taxes on unreported cash tips without first determining which employees did not report their tips. The 2-1 decision stated that "The tipped employees are, in effect, bound by an honor system," to report their tips.

However, when employees fail to report their tips, employers are still liable for their end of the bargain to pay FICA taxes. Herman Cain, CEO of the National Restaurant Association, said, "We believe that Congress never meant to give the IRS a way to force restaurant owners to become tip police."

The NRA is considering its next move on this issue. For the time being, restaurant owners should not make any immediate changes to their tip reporting practices.


Health Care Deja Vu
With the close election results in the U.S. House of Representatives, proponents of health care reform are circling the wagons for another round of debate. Congressional Democrats are touting Sen. Ted Kennedy's "Patients&Mac226; Bill of Rights" package as a needed component of any health care overhaul. This package is dangerous to the business community.

The Kennedy proposal would initiate new mandates on employers for health coverage for their employees. The proposal also would allow employees to sue their health care provider and their employer if they are dissatisfied with their health care coverage.

The Michigan Restaurant Association is working with the Michigan Congressional delegation to educate them on the ramifications of employer-mandated health benefits. Please contact your congressman and explain the significance of this issue to your business.


Music Licensing Victory
You may have already heard the good news from Washington. The National Restaurant Association worked for years to produce a music licensing compromise and was finally successful in late October. The legislation signed by President Clinton expands the exemption for restaurants playing radio or television music to 3,750 sq. feet.

More important though is the provision allowing contested cases to be filed in one of the 12 federal circuit courts, rather than in New York only. While this still poses significant travel costs on restaurateurs contesting rate cases, it does allow restaurateurs 11 other options closer to home for filing rate contests.

The Michigan Restaurant Association will continue to fight for relief from the performing rights societies at the state level.


Federal Tax Bill
The Congress passed a late session tax cut bill containing some restaurant friendly provisions. First, was a reauthorization of the Work Opportunity Tax Credit (WOTC) through July 1999. This credit is used by many restaurateurs in hiring certain disadvantaged classes of people enter theworkforce.

Second, is a provision accelerating the phase-in of health insurance premiums paid by self-employed individuals. Health insurance premiums from self-employed individuals were to be 100 percent deductible by the year 2007. This phase-in 100 percent deductibility was moved up to 2003.