LITTLE ROCK — It has probably happened to you more than once: You examine your restaurant check and discover you’ve been charged for something you didn’t order.
Actually, every restaurant check has a charge for something you didn’t order: sales tax.
If you live in any one of Arkansas’ biggest restaurant markets, more than a tenth of your total restaurant food tab goes to pay state and local meal taxes - 10.5 percent in Little Rock, 11 percent in North Little Rock, 11.25 percent in Fayetteville and 11.625 percent in Hot Springs. (That doesn’t cover the roughly 32 percent of the price of a mixed drink in federal, state and local taxes, which is included in the overall price and therefore less obvious. But that’s another story.)
The total restaurant tax in Little Rock is higher than it is in 47 of the country’s 50 biggest cities. It’s higher than diners pay in New York (8.875 percent), Los Angeles (8.75 percent), San Francisco (8.5 percent), Washington (10 percent), Memphis (9.25 percent) and Las Vegas (8.1 percent). (Of course, the price of a meal in those cities is likely to be higher, so taken all in all, you’d face a higher total bill in New York, L.A. or D.C.)
The Tax Foundation, a nonpartisan research organization that has been monitoring federal, state and local fiscal policy since 1937, in March reported in “Meals Taxes in Major U.S. Cities” (taxfoundation.org/news/show/28018.html) that 15 of the nation’s 50 biggest American cities charge additional meals taxes on top of regular sales tax. The highest combined tax rates on that list were in Minneapolis (48th in population, 10.775 percent), Chicago (third, 10.75 percent),and Virginia Beach, Va. (39th, 10.5 percent).
“High taxes on prepared food are sometimes justified as a luxury tax intended to target higher-income individuals,” says Joseph Henchman, Tax Foundation vice president for state projects and one of the paper’s coauthors.
But “One could say that it is a tax on individuals with less flexible schedules or who do not like to cook - rich or poor.”
STATE TAKES A CUT
Arkansas’ state sales tax is 6 percent, which you’ll pay at every eating establishment from swanky steakhouse to mom-and-pop popcorn stand.
Little Rock voters approved a 1 percentage point sales tax increase in September (technically they approved two sales tax increases, of five-eighths and three-eighths of a percent, which amount to a whole penny on each dollar spent). That brought the total city sales tax to 1.5 percent.
Factor in the state sales tax, a 1 percent Pulaski County sales tax and a 2 percent “gross receipts tax” for restaurants and hotels (more familiarly known as a “hamburger tax,” it helps fund the city’s Advertising & Promotion Commission).
North Little Rock collects an additional 1 percent city sales tax and the 1 percent Pulaski County sales tax, plus a 3 percent prepared food tax, which comes to 11 percent.(In November, North Little Rock voters turned down a 1 percentage point sales tax increase that, among other things, would have raised the combined meals tax to 12 percent.)
Fayetteville adds a 2 percent city sales tax, a 1.25 percent Washington County sales tax and a 2 percent hotel/motel/restaurant tax. (Half of that goes to the city parks department, which state law permits for Fayetteville, Fort Smith and North Little Rock; the other half helps fund the city’s A&P Commission.) Cha-ching! 11.25 percent.
TOURISM EFFECT
Hot Springs diners pay a 1.5 percent city tax, a 1.125 percent Garland County tax (recently increased by a half percentage point to pay for a new county jail) and a 3 percent restaurant tax that goes to fund Visit Hot Springs, formerly the Hot Springs Convention & Visitors Bureau. Total: 11.625 percent.
“Restaurant taxes in Arkansas cities are too high,” says Montine McNulty, executive director of the Arkansas Hospitality Association, a trade group for the state’s restaurants and hotels.
Don Dugan, who owns Dugan’s Pub in Little Rock and is a member of the board of the Arkansas Restaurant Association, agrees.
“I understand taxes are necessary,” Dugan says. “But as a business owner, it’s one of the things I wish were lower.”
Dugan says merchants unjustly get the blame when a tax increase raises prices. “We as business owners can’t absorb taxes; it gets passed along to the consumer every time,” he says. “If you have a $25 meal taxed at 10 percent, that’s an extra $2.50 you’re paying. And you have to leave a gratuity on top of that.”
Higher taxes also act as a drag on sales - customers are less likely to order an appetizer, dessert or drink.
“Prepared food” is usually defined as either being consumed in a restaurant or taken to go for later consumption, as opposed to groceries (or “nonprepared food”), which 30 states and the District of Columbia completely exempt from state sales tax and eight other states (including Arkansas) partly exempt.
City fathers pair restaurant taxes with high taxes on hotel rooms and rental vehicles, and officially aim them at tourists, according to the Tax Foundation.
PROMOTING TOURISM
Steve Arrison, Visit Hot Springs chief executive officer, defends the taxes because they go toward attracting tourism, especially important in a tourist town like Hot Springs.
“It should also be noted that the Hot Springs 3 percent Advertising and Promotion Tax, key to the successful visitor program, collected an estimated $4,686,757 in 2010,” according to Visit Hot Springs’ “Garland County 2010 Visitors Economic Impact Report.”
“It is very important to point out that visitors paid approximately 80 percent of this tax.”
“Hamburger” tax money goes entirely to fund park and tourism budgets, not city coffers, notes Karen Trevino, executive director of the North Little Rock Visitors Bureau. She says it’s important to compare apples to apples.
“In some states, a lot of the convention and visitors bureaus are membership-driven or paid for through a different process,” she explains.
For example, she says, New York once had a similar tax, but dropped it after tourism dropped in the wake of the Sept. 11, 2001, terrorist attacks. Other states have other ways of financing tourism, such as a fee of $1 per room per night used.
“A lot of other places are very envious over the way it’s set up [here],” she says. “It’s very clean.”
NO CONVENTION CENTER
Trevino says part of the North Little Rock tax goes to operate and maintain Burns Park. “We don’t have a convention center,” she says. “Burns Park is really part of our center.”
Leisa Pulliam, the Little Rock A&P Commission’s chief financial officer, says the gross receipts tax on restaurants and hotels brought in $11 million in 2011 - $2,370,000 of that from hotels, $8,653,000 from restaurants.
The commission uses the money “to promote the city and develop the economy for Little Rock and central Arkansas,” she says, including operating the Statehouse and Robinson convention centers, the River Market, three parking garages and a service lot.
Exact figures on just who pays the bulk of the tax - locals or tourists - are hard to pin down.
“The majority of hotel lodging is out-of-state [visitors],” Pulliam says. “There is not really a way to measure how much is in-state by region or [from] out of-state,” people attending conventions and events.
For example, the national touring production of Wicked drew a capacity crowd of 2,500 for every one of 16 shows over two weeks at Robinson Center Music Hall, which Pulliam notes was a major boost for area restaurants - and for restaurant tax revenue.
In central Arkansas, which has more than 700 restaurants, dining out is a major pastime. Little Rock started levying a hotel and restaurant sales tax in 1970, bumping up the surcharge from 1 percent to 2 percent in 1979.
A 2004 Democrat-Gazette story on a city panel charged with evaluating the tax’s effectiveness noted, “It’s difficult to know how much tourists contribute to city revenue because the tax applies equally across the city and diners pay about 75 percent of the tax.”
Style, Pages 27 on 05/22/2012