Dining, out? meals tax revenues show decline
It's no secret that restaurants are struggling these days, but for the first time in over a decade, the numbers–- in the form of meals tax revenues–- are now showing the depth of the decline.
Since the late 1990s, meals tax revenues have been a cash cow for the city and county, as both governments tack four percent on top of every restaurant bill (and they also get 1 percent of the 5 percent state sales tax).
For years, meals tax revenues were a sign of our robust dining scene, increasing anywhere from 4 to 6 percent for the last five years. Even in 2003, when the city hiked its meal tax rate from 3 percent to 4 percent, the coffers got a 40 percent increase in revenue the following year. In 2008, the county hauled in $5.8 million, while the city collected $6.7 million, making it the city's fifth largest source of revenue.
But that trend appears to have halted in 2009. Meals tax revenues collected in May were down nearly 12 percent from the same time last year, according to Robert Walters with the county's finance department.
"We are in a serious economic downturn, and people are simply not spending money," says Walters.
In the City, the latest figures are projecting a more modest decline, 5.2 percent for the just-completed fiscal year, but compared to the boom in revenue just a few years ago, and from where the city's own tax collector sits, the figures don't begin to tell the story.
"There are a lot of hurting people out there," says Lee Richards, the city's commissioner of revenue. "It's the worst I've seen it in 35 years."
In cash-strapped Scottsville, a plan to raise the meals tax from 4 to 5 percent was recently shot down, as restaurant owners complained that it would scare away diners, a scarce commodity these days in the little hamlet on the James River.
Some also feel that restaurants go largely unrewarded by local government for acting as a conduit for such a major revenue generator. In fact, a handful of restaurants on West Main Street plan on forming an association to address the issue.
Governments typically assert that much of a meals tax's revenue comes from visitors. Opponents, however, note that shops that sell stuffed animals only collect sales tax. But restaurant meals get hit with both sales and meals tax.
"Having to pay the city cash semi-annually really affects cash flow, causing or creating the need for more cash on hand or loans," says Mas chef/owner Tomas Rahal. "This is especially unwelcome because [restaurants] are already feeling the pinch from decreasing sales and expensive leases."
Oxo was a seemingly popular Water Street restaurant until it closed last year because, in large part, the owners got behind on their meals and sales tax bills. Across the street, gourmet Italian restaurant La Cucina closed in 2007, and while owners Franky and Meridith Benincasa were rewarded by selling their building, they had some parting words.
"Unfortunately, it's going to be hard for small restaurants to make it in Charlottesville in the next few years," Ms. Benincasa told the Hook. "Rents are so high, and buildings are so expensive, that only chains or restaurant groups can afford to move in."
In France last month, the meals tax was lowered in an attempt to save the small restaurants and caf©s for which the country is famous, according to a recent story in the New York Times. Believe it or not, facing stiff competition from large chains like McDonald's and Starbucks, an integral part of French life is disappearing. In 1960, according to the Times, there were 200,000 cafes in France. Today there are only around 38,000, and more than 2,000 closed last year.
While demographic and lifestyle factors (such as the proliferation of Facebook) get much of the blame for the demise of French caf©s, the Hook's recent launch of Charlottesville Restaurant Week seems to suggest that price means a lot to diners. During a typically slow restaurant season, several of the restaurants participating in the event, which will feature three-course meals for just $25, are already reporting a stampede of bookings.
Might a local reduction in the meals tax, something the National Restaurant Association has been advocating, provide a similar stimulus for the local dining scene? While no such plan is in the works, considering the worrisome decline in meals tax revenue, Charlottesville officials may want to hear what their own taxman is saying.
"People are hurting," says Richards, "and you have to put yourself in their shoes."