One local issue gets outspoken Shockoe Slip restaurateur Mike Byrne’s goat like no other: the city’s meals tax on top of the sales tax.
“Are you kidding?” asks the owner of Richbrau Brewing Co. on East Cary Street. “Especially in the current economy, the thoughts run from outright confusion to outrage.”
What causes Byrne such grief is that the city of Richmond is the only locality in the region to impose a levy on sales of everything from fast-food fries to gourmet five-course meals. At 6 percent, the rate is also higher than the 5 percent median for Virginia cities, all 39 of which collect a meals tax of between 3 percent and 6.5 percent, according to University of Virginia’s Weldon Cooper Center for Public Service.
Although Richmond’s rate isn’t the highest in the state, it’s close. Richmond and four other cities charge 6 percent, while eight — Emporia, Franklin, Hampton, Lynchburg, Newport News, Norfolk, Portsmouth and Suffolk — draw 6.5 percent. Nationwide, major municipalities from New York City to San Francisco impose lower levies than Richmond.
Byrne claims the tax, combined with the chronic challenges of city parking, is damaging downtown restaurant business by encouraging people to seek easier, cheaper eats in the outlying counties. City Council and Mayor L. Douglas Wilder, Byrne says, are in “total denial. … The main corridor of Richmond’s downtown — commercial, retail, entertainment and hospitality — is losing its ass to the suburbs.”
In operation, the city’s tax works like this: Diners shell out for the tax when they purchase each prepared meal. The restaurant management then holds the funds in escrow and makes one lump payment to the city by the 20th of each following month. Between July 1, 2006, and June 30, 2007, the Richmond tax generated $23.15 million.
Richmond’s prepared food tax dates to 1969, when it was first introduced at 1 percent. Gradual increases brought the level to 5 percent in 1991 where it stayed level for 13 years.
In 2004, City Council bowed to heavy lobbying by the now-defunct Virginia Performing Arts Foundation and hiked it to the current 6 percent rate, directing the 1 percent hike to support VPAF, a move that Byrne and others opposed at the time. The designation to VPAF was approved on the condition that group members raise more than $30 million on its own. It didn’t do so by a 2005 deadline, but council let the support continue.
The rate would have automatically reverted to 5 percent in 2006. But in February of that year, Mayor Wilder — who wasn’t yet in office when the increase was approved, and who fought rabidly to dismantle VPAF after being elected — proposed extending it indefinitely. Council unanimously agreed five months later.
In doing so, the mayor and council members removed the designation to the arts group. All meals-tax funds now are poured into the city’s general fund, the pot from which almost all city operational costs are budgeted and disbursed. The ordinance that the mayor fronted and council backed suggests that the funds would go toward the mayor’s lofty yet vague $300 million “City of the Future” capital-improvements program, but there is no requirement for that to happen.
Wilder’s press secretary Linwood Norman ignored multiple requests by Richmond magazine for an interview regarding the meals-tax policy with Chief Administrative Officer Sheila Hill-Christian or Chief Finance Officer Harry Black.
First District Councilor Bruce Tyler, one of the body’s more fiscally conservative members and vice chair of its finance committee, says he voted in favor of the extension because the money is intended to support education and the arts, although it does go to the general fund.
So far, the city has committed about $25 million to renovate the historic Carpenter Center, which is scheduled to reopen in 2009 as one of four venues now being called Richmond CenterStage. Improvements to the Landmark Theatre also are planned.
“As long as we have to pay the freight on CenterStage, I do not see us repealing this tax,” Tyler says. “As for it being fair, I believe it should have been a regional tax as opposed to a city tax.”
Council President William J. Pantele, a likely candidate for this year’s mayoral race, says he would support council discussion of a rollback of the 1 percent extension in the near future, particularly as annual revenues from the overall tax continue to rise. He notes, though, it is unlikely that the matter will be taken up during this year’s budget talks,
“In the near term, I think it would be fair to take a renewed hard look at that tax,” he says. “Perhaps governments quickly forget why a particular imposition was made and years later you forget that was there and it is out of sight and out of mind.”
Although cities can impose meals taxes by simple vote of the governing body, state law requires public approval in most counties, and even then the rate is limited to
4 percent. In the Richmond region, Henrico County voters rejected a proposed 4 percent meals tax by just 151 votes in March 2005, the same year they approved bond packages for schools, libraries, fire stations, parks and roads.
If Richmond’s council or administration decides to review the appropriateness of the levy, they might look to Virginia Beach for a model. There, a task force was formed in 2006 under pressure from the business community to study its 5.5 percent rate. The task force wanted the council to support giving voters the right to approve or reject changes to the tax via referendum, but local politicians weren’t ready to give up their say-so. The council did follow the task force’s advice to leave the rate as it stands, at least for now.
Here, until either the administration or council chooses to revisit the issue, diners will be forced to pay, and Byrne will continue to fume and reluctantly comply.
At the end of a recent long e-mail on the subject, Byrne writes: “I could go on but it is the 20th of the month and I have to write tax checks.”