Executive Travel : Tax Law Dishes Up Changes for Expense Accounts, Restaurants

Restaurants are feeling an additional bite from the tax laws the year, more than 18 months after Congress cut the business meal deduction from 80% to 50%.

Although in effect for all of last year, some travelers didn’t recognize the pinch until they filed their income tax returns. Thus many in the restaurant industry are braced for even more aggressive cuts in travel meal budgets.

“The full impact still will not be felt for a while,” said Wendy Webster, spokeswoman for the National Restaurant Assn. in Washington.

Several surveys indicate that restaurants have cut prices as business travelers have cut their budgets. Also, “there is already a lot of anecdotal information from operators showing they have lost a great deal of business,” Webster says. Some restaurants have had to stop serving lunch entirely.

Bianco’s in Denver, for example, is across the street from the Denver Technology Center, which has hundreds of corporate offices. But owner Fred White said business had fallen so much that he no longer serves lunch.

Others have noticed reduced spending too. At the Fresco restaurant in Glendale, which caters to Disney Studios and Warner Bros. executives, for example, manager Kevin Brown said he has spoken to some customers who have had their expense accounts cut. Business has been down in part because of the recession and in part because of the change in the deduction. “Certainly, when the government came and took away the deduction, it affected us,” he said.

Some companies have started in-house food services instead of taking clients out to lunch, he said. Or they have begun giving gifts rather than entertaining clients. “There are other ways to go about treating people,” he said. “Dining out isn’t always the method of choice anymore.”

In Des Moines, Iowa, Joey Fasano, owner of the upscale Wall Street restaurant, cut his staff from 50 to 35 after his corporate clients, many of them executives from the insurance and agriculture industries, told him their expense accounts had been eliminated or reduced because of the limit on the business meal deduction.

At Bayou’s in San Antonio near the Convention Center downtown, the decline became especially noticeable by the end of the year, when corporate clients such as Ticketmaster curtailed holiday entertaining.

Congress reduced the business lunch deduction as a way to cut the deficit, reasoning that the government need not indirectly subsidize expensive meals and that it was a common area for abuse. But Webster thinks it’s unfair that business meals have been singled out.

“I could fly on a Concorde, use a limousine to pick up a client, drive to place for lunch and order a hamburger and everything would be 100% deductible,” she said, “except for the hamburger.”

According to the most recent statistics available, one out of five U.S. households has at least one member who purchases meals while traveling or entertaining for business reasons, Webster said. There are about 25.3 million business meals purchased each year, about 6.2 million of them on the road and the rest associated with entertaining customers or associates.

There is ample evidence that people on the road are spending less on eating out.

According to a recent survey by Zagat, which publishes restaurant and hotel guides for major cities, the average price of a meal in New York City dropped to less than $30 for the first time since the early 1980s. The average price for a meal, including drink, tax and tip, was $29.38, 2.7% less than a year ago and 13% below the 1991 average.

Zagat said the drop could be attributed in part to the increasing use of fixed-price menus and discount dining clubs. Restaurants also have added lower-priced offerings, Zagat spokesman Allan Ripp said.

For travelers, the most expensive cities for eating out are New York (average meal costs $29.38); Toronto ($28.68); Miami ($25); San Francisco ($24.78), and Washington ($23.88).

The least expensive cities are Kansas City ($12.15); Houston ($13.67); St. Louis ($15.81); Salt Lake City ($16.28), and New Orleans ($16.68).

The city with the biggest change in the average meal price over the previous year is San Francisco, with a drop of 9.3% between 1993 and ’94.

Over a three-year period, however, the city with the biggest drop in prices is Los Angeles. In 1991, the average cost of a meal was $27.91. By 1994, it had fallen to $22.95.

Not only are people spending less on meals out, they are also changing some of their dining patterns as companies pay more attention to these costs, Webster said.

A recent survey by American Express Travel Related Services, for example, showed that 45% of smaller companies (those with fewer than 100 employees) and 74% of mid-size companies (between 100 and 1,500 employees) said they have taken steps to inform employees and enforce existing travel and entertainment expense guidelines.

A majority of companies (65% of small companies and 79% of mid-size ones) also said they plan to reduce restaurant spending.

For example, 29% of small companies said they plan to steer travelers away from fine dining. A similar percentage (27%) of mid-size companies said the same thing.

All indications point to companies shifting their dining dollars to moderately priced restaurants.

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Cheaper Meals

The average price of a business meal has been dropping steadily in recent years. The most recent figures from Zagat Survey show a substantial decrease from 1993 to last year in virtually every U.S. city. A selection:

New York: 1993: $30.20 and 1994: $29.38

Los Angeles: 1993: $23.76 and 1994: $22.38

St. Louis: 1993: $16.42 and 1994: $15.81

Kansas City, Mo.: 1993: $12.64 and 1994: $12.15

Washington: 1993: $25.72 and 1994: $23.88

San Francisco: 1993: $27.31 and 1994: $24.78

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