Deconstructing the One Big Beautiful Act’s Impact on the Food and Beverage Industry

The bill to be called the One Big Beautiful Act was approved by the House on May 22 and is significant legislation intended to extend the 2017 Tax Cuts and Jobs Act (TCJA), reduce certain government spending, and enact other policy changes.  The bill is currently being debated in the Senate, where changes are expected, with a target date of July 4 to be signed into law.

For food and beverage companies, the tax implications of this bill could be substantial, primarily through the following provisions:

Extension and Expansion of TCJA Provision

Individual Tax Rates

The bill makes the regular income tax rate schedules under section 1 as enacted by the TCJA permanent for individuals.  Because these rates were scheduled to increase with the sunset of many TCJA provisions, this is a win for owners of food and beverage companies.

Corporate Tax Rates

The bill leaves the corporate tax cuts enacted in 2017 in place. This would generally be beneficial for food and beverage companies operating as C corporations by continuing to reduce their overall tax burden.

Qualified Business Income (QBI) Deduction (Section 199A)

The bill proposes to make permanent and expand the QBI deduction for pass-through entities (e.g., S corporations, partnerships, and LLCs) and sole proprietorships. This deduction, currently set to expire, allows eligible business owners to deduct a percentage of their qualified business income. For many food and beverage businesses structured as pass-through entities, this could lead to significant tax savings. The bill would increase the deduction from 20% to 23% and streamline some of the limitations.

Bonus Depreciation

The bill would revive bonus depreciation for property placed in service after January 19, 2025 through 2029. This allows businesses to immediately expense a large portion of the cost of new equipment and property. For food and beverage companies that invest in new machinery, production lines, or facility upgrades, this could provide an immediate tax benefit by reducing their taxable income.

Research and Experimentation (R&E) Expensing

The bill would revive the ability to currently deduct all domestic R&E expenses incurred from 2025 through 2029. This is beneficial for food and beverage companies that engage in research and development, such as developing new food products, improving manufacturing processes, or exploring new ingredients.

Estate Tax Exemption: The bill would increase the estate tax exemption permanently to $15 million starting in 2026. While primarily impacting individuals, this could benefit family-owned food and beverage businesses by reducing the estate tax burden when ownership is transferred.

Elimination of Tax on Tips and Overtime

The bill creates a new section 224 that allows a deduction for qualified tip income through 2028.

For food and beverage companies, especially those in the restaurant and hospitality sectors where tipping is customary, this could have significant implications for employee compensation and reporting. While tips would still be subject to FICA (payroll) taxes, the income tax deduction for employees could affect their after-tax pay and potentially influence their compensation expectations. Employees may want to consider changing their withholding amounts due to the new deduction.

As a result, affected companies may need to assess record maintenance to be able to determine what would constitute qualified tip income. For example, a service fee charged by a restaurant would not qualify because it is not a voluntary payment by a customer.

The bill also extends the employer tax credit for FICA taxes paid on tips, currently applicable only to food or beverage service employees, to include tips in beauty services. This is a direct benefit to food and beverage employers by offsetting their FICA tax liability on tipped wages.

The amount is determined from the qualified tips that an individual receives during a taxable year and is reported on Form W-2s, 1099-K, or 1099-NECs, or reported by the taxpayer on Form 4317 (or successor).

Changes to Clean Energy Incentives

The bill proposes to accelerate the phaseout of most clean energy business tax incentives and terminate most energy credits for individuals that were enacted in recent years (e.g., through the Inflation Reduction Act). For food and beverage companies that have invested in or planned to invest in energy-efficient equipment or renewable energy sources, this could reduce potential tax credits and increase operating costs related to energy.

SNAP (Supplemental Nutrition Assistance Program) Cuts

The bill significantly cuts spending on SNAP through stricter eligibility requirements and shifts more of the program’s costs onto states. While not a direct tax on food and beverage companies, changes to SNAP could impact consumer purchasing power, potentially affecting demand for certain food products, especially those consumed by lower-income households.

State and Local Tax (SALT) Deduction Cap

The bill proposes to increase the state and local tax (SALT) deduction cap from $10,000 to $40,000 for married couples filing jointly and single taxpayers with adjusted gross incomes up to $500,000, subject to a phase-out rule. For married individuals filing separate returns, the SALT Cap is $20,000, and the phase-out starts at $250,000. While this primarily impacts individual taxpayers, business owners who pay significant state and local taxes on their pass-through income could see a benefit.

Conclusion

It’s important to note that the One Big Beautiful Act is still undergoing the legislative process in the Senate, and its final form may differ from the House-passed version. Food and beverage companies should closely monitor its progress and consult with CBIZ tax professionals to understand the specific implications for their operations if and when it becomes law.