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The 411 on the Meal Tax

02/05/2018 2:00 AM by

So, there is a LOT of information out there about the meal tax. Many in support and many opposed. Democrats and Republicans on both sides. Restaurant owners on both sides. I’ve been talking to a lot of the folks about this issue and I wanted to write up a quick summary as I see it.  I have decided not to directly quote or mention the names of patrons and restaurant owners because this is such a controversial issue.  However, you can see some of the supporters and detractors in the links I’ve provided.

First, what is It?

The meal tax is a tax that is levied when you dine in at restaurants and when you buy prepared foods from places like the grocery store and convenience store.

How does it work (sales tax + meal tax = total tax)

To put things in perspective, I think it’s important to understand what the current sales tax rate is in Richmond City. Richmonders currently pay a 5.3% combined (state + city) sales tax rate. The 5.3% you pay in taxes right now makes Richmond’s sales tax rate one of the lowest in the entire country. In fact, there are only 3 other cities, with populations over 200k people, that have lower sales tax rates. (Tax Foundation 2016)

So, when you combine the sales tax with the meal tax you get the combined tax you pay on dining out and prepared food. A total of 11.3% as it stands right now.

Many have suggested that the current meals tax is already one of the highest in the country. In truth, there doesn’t seem to be a lot of conclusive evidence to support this one way or the other. One often cited study is this one: (Top 50 Cities Meal Tax Analysis). However, that study only looks at the most populous 50 cities in the country which doesn’t include Richmond.

Who Decides

Virginia cities and counties have different structures to levy meal taxes on residents. In a county, the tax must be put on the ballot and approved by a majority vote (58.1-3833) (Counties want Right to Raise Tax). However, in cities, like Richmond, all that is required is a vote by City Council.

What’s being Proposed

The current proposal by Mayor Stoney, and being voted on by the City Council, proposes a 1.5% increase to the Richmond meal tax. That would make the total meal tax 7.5% and your total tax on food 12.8%. (From the Mayor’s Office)

However, and this is important, the 1.5% is going into a special fund ONLY for school infrastructure (at least for the moment – see Cons: The History of the Meal Tax).

Examples: On a $100 food purchase you would currently pay $111.30 after tax. After the tax increase that would go up to $112.80. Or if you like cheaper food and you purchase $10 worth of food you currently pay $11.13 and after the tax increase, you would pay $11.28.

Cons – Who Opposes it and why

First, we’re going to start with the cons. I talked to a lot of people and as you might guess there were many people from all different backgrounds that opposed the tax.

  1. Some people oppose taxes on principle.
  2. Restaurant owners say the tax will hurt businesses and keep them from being competitive (http://www.stopthefoodtax.com/).
  3. You also have a population that opposes any sort of regressive tax. There is general thinking that taxes such as these, on goods, disproportionately affect poorer families. The logic behind this is that a person doesn’t generally dine out in direct relation to their income. What I mean by this is that wealthy individuals aren’t dining out 100% of the time and poor individuals don’t just stay home and never dine out. The result is that, in proportion to their income, poorer individuals spend much more on dining out than their wealthier peers (USDA on Engel’s Law).
  4. Many residents see the Richmond City government and school system as being extremely inefficient. They would like to see efficiencies put in place and the money squeezed from the budget in other places.
  5. Other Richmonders simply don’t trust the government ESPECIALLY when it comes to the meal tax. To understand that you need a little history lesson.

Cons: The History of the Meal Tax in Richmond

The original meal tax dates back to 1969 and was 1%. The tax rate was gradually increased over the years and reached 5% in 1991. The 5% rate was in place for 13 years until 2003. (Richmond Magazine 2008). In 2003 the city proposed an additional, temporary increase, to the meals tax to fund the development of Richmond Center Stage which is now the Dominion Performing Arts Center. However, when this temporary 1% increase was set to expire the city council unanimously voted to leave it in place. This was back in 2006.

This failed promise left a bad taste in the mouths of many Richmond residents and that carries on to today for the residents that are still here 12 years later.

Pros – Who Supports it and Why

There are a lot of people that supported the meal tax increase. These ranged from the obvious, like the Mayor who made the proposal to restaurant owners. You can learn about some of the supporters here at http://rvakidscantwait.com/.

  1. Raising the meal tax an additional 1.5% will generate an additional 9.1 million in revenue each year for the city and immediately increase the city’s borrowing limit allowing them to fund $150 million in new school construction and renovation.
  2. The meal tax is a luxury tax. This is a disputed assertion, but the idea is that it only affects people that dine out which, in theory, are people with more disposable income.
  3. It’s better than a general sales tax increase or property tax increase because:
    1. It, in theory, affects the rich more than the poor (see #2 above)
    2. It’s also funded by tourists and people that don’t live in the city which wouldn’t be the case for a property tax increase.  This lessens the overall burden on city residents.
  4. It’s a minor increase. Many people I spoke to that were in favor of the increase, including many restaurant owners, said that adding 30 cents to a $20 bill or 60 cents to a $50 bill isn’t going to make a huge impact on diners or their bottom line.

Summary

As you can see there are pros and cons to an increased meal tax hike and both sides make excellent points. One observation I made is regarding how long people have lived in Richmond. People that have moved here in the last 10 years didn’t truly have an awareness that there was an existing meal tax. So, to them, increasing the meal tax by 1.5% was often-times a non-issue (this certainly didn’t apply to everyone).

However, the opposite was true of Richmonders that have been here since 2003 when the 1% “temporary” tax was put in place. They’ve heard the city’s promises about devoting the increased revenue to specific projects before and want to know why this time is different.

Both sides always agreed that our Richmond Public Schools are in desperate need of attention. The question is how to go about making those improvements. Do the current plans do enough? Should there be more consolidation? And how are we going to fund the developments and renovations?

One thing this Richmonder knows is that the Mayor, City Council, and School Board members have their work cut out for them.

Currently, City Council has this item on their agenda for February 12th, 2018. Officially called Ord. No. 2018-017

You can attend meetings, write your City Council Reps., and also sign the petitions supporting or opposing these causes.

City Council Meeting Dates

City Council Contact Info or City Council District Map

Opposing Petition: http://www.stopthefoodtax.com/

Supporting Petition: http://rvakidscantwait.com


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