With New York facing a tremendous budget deficit and business still reeling from the economic shutdown triggered by COVID-19, state and city lawmakers are looking everywhere they can for means to generate revenue, both for the government and for businesses directly.

As of October 2020, New York City restaurants and bars have been allowed to add a “COVID-19 recovery charge” to diners’ bills, excluding takeaway and delivery orders. The measure, which caps the potential surcharge at 10% of the consumer’s total bill, is available to restaurants from the law’s effective date until 90 days from when they can operate at maximum indoor capacity.

A restaurant adding a surcharge to the amount a paying customer owes must disclose the amount of such added surcharge before the food is ordered. The disclosure must be:

  • Written;
  • Explicit that the additional charge is a surcharge and not a gratuity;
  • Clear and conspicuous;
  • On any document, whether in paper or electronic format, that lists the prices for the customer, including but not limited to any paper or electronic menu, catering contract, final customer bill, or customer’s credit card receipt if a credit card is used;
  • In plain English, or in the same language as the rest of the menu, if applicable; and
  • In a font size similar to surrounding text.

Businesses seeking to utilize this surcharge to stay afloat may, however, pay a cost at the other end of recovery. Notably, the surcharge is subject to sales tax, meaning those businesses that fail to charge sales tax at the correct rate on the surcharge may face a sales tax audit – a potential economic boon to government authorities looking to close budget shortfalls by generating tax assessments.

Until the passage of the new measure, the Rules of the City of New York § 5-59 prevented food and beverage businesses from adding surcharges to listed prices, with exceptions for bona fide service charges conspicuously disclosed to consumers before ordering, i.e. mandatory gratuity for large parties or minimum per customer charges.

Perhaps equally publicized are Governor Cuomo’s intentions to revisit the legalization of cannabis as a means of aiding the State’s financial recovery, which has surely gained traction in light of the success of New Jersey’s recent referendum. Cuomo has included legalization in his last two budget proposals, but negotiations fell through both times, with lawmakers unable to agree on how to allocate the tax revenue.

In line with that effort, earlier this year, Governor Cuomo launched a Cannabinoid Hemp Program, through which the State Department of Health filed proposed regulations for the manufacturing and retailing of hemp products in the State. His program is intended to organize and legitimize the cannabinoid market by creating a licensing framework for cannabinoid hemp processors and retailers, and applications for licenses may be available as early as 2021.

Whether any of these measures will suffice as either a means to narrow the budget gap or as a helping hand to businesses remains to be seen.

For further information, please contact David Paseltiner at  dpaseltiner@jaspanllp.com or Jessica Baquet at jbaquet@jaspanllp.com.