By: Terri Morris
The first time I became aware of a meals tax was when I purchased some bread from a bakery. I had purchased that same loaves many times before but one day, they cost more. I never really thought to check the receipts that were emailed to me but this price increase was enough to spike my curiosity. When I reviewed my e-receipt I saw that the loaves were subject to a sales tax as well as a meals tax. The meals tax was substantial enough that it added an extra dollar to my bill. I didn’t understand how a couple of uncut loaves of bread were considered a meal, especially when the tax didn’t apply to the same uncut loaves the last time I purchased them.
A meals tax is a tax on prepared foods in certain establishments[1]. The tax is usually seen in restaurants, dining rooms, grill, coffee shops and cafes, movie theaters, bakeries, bars and food trucks.[2] Meals taxes are not federally mandated; states and localities implement the tax in order to collect additional revenue on top of sales taxes.[3] Currently, there are over twenty states that have a meals tax.[4] Meals taxes vary in amount depending on the locality and they can be increased as seen fit by local governments.[5] Many of these taxes are imposed after being passed by a voter referendum. [6]
While meals taxes are imposed as a way to collect revenue (ranging from .05% to 8% in some cities[7]) they can have negative collateral effects that are more harmful to the communities on which they are imposed and are often met with contempt from citizens.[8] A meals tax is essentially a consumption tax.[9] Some consumption taxes are thought to be regressive.[10] Regressive taxes are taxes that lead to continued inequality as they have the effect of taking a “larger share from low-income budgets and contribute to increased inequality in income and consumption opportunities.[11] For example, someone that makes $100,000.00 a year will pay the same amount of meals tax as someone that makes $20,000.00 so the tax ends up taking a greater percentage of the lesser earning individual’s income.[12] The meals tax, itself, is thought to be regressive because it disproportionately affects lower-income individuals.[13]
Now, if this tax is supposedly so regressive, and it needs to be passed by voter referendum, one must wonder how is it that the tax is being implemented? The authority to implement a meals tax is found in state statutes.[14] In Virginia, for example, the authority to implement meals taxes is found in the Virginia Code § 58.1-3833. [15] This section is called the County Food and Beverage Tax.[16] The meals tax can be “initiated either by a resolution of the board of supervisors or on the filing of a petition signed by a number of registered voters of the county equal in number to ten percent of the number of voters registered in the county, as appropriate on January 1 of the year in which the petition is filed with the court of such county.”[17]
The meals tax in the state of Virginia has been enacted in over 100 localities.[18] Ten percent of each of the localities’ population that is registered to vote is able to get this issue on the ballot and with enough support, the rest of the community will be subject to the tax.[19] Virginia is actually an anomaly in the rate of the meals taxes allowed by the state.[20] The Tax Foundation has found that “while Virginia stands out by involving the voters in at least some meals tax determinations, it simultaneously allows localities to impose those taxes at uncommonly high rates.”[21] Some of those who support the meals tax find that because the tax is meant to target those who just travel through the localities, it will lessen the burden on those who live in the localities, while still benefiting it.[22] The tax has even been hailed as a “fair tax.”[23] A resident of Campbell County, Virginia, stated: “The meals tax is one of the fairest taxes that we have around because it affects everybody.”[24] “It doesn’t discriminate. It’s not about black, white, rich or poor. It’s about if you eat out you pay it. If you choose not to eat out you don’t.”[25]
When the meals taxes are being implemented, they sometimes end up lessening the burden of the property tax and fall on a wider tax base of the population.[26] This is an indicator that those who have the means to own property are making decisions that are going to affect those who do not own property.[27] Further, eating out is not always just a choice as lower income individuals that work may work multiple jobs may not have the time to make every meal and may need to eat out due to necessity.[28] The extra cents and dollars added to the bills at food service establishments add up, regardless of socioeconomic status, and while cities and localities need revenue one must wonder if collecting that revenue based on people’s eating habits is the fairest way.
[1] Meals Tax FAQs, Richmondgov.com, http://www.richmondgov.com/Finance/documents/faqMealsTax.pdf (last visited Mar. 15, 2020).
[2] Id.
[3] Jared Walczak, Punching the Meal Ticket: Local Option Meals Taxes in the States, Tax Foundation (Jan. 26, 2017), https://taxfoundation.org/punching-meal-ticket-local-option-meals-taxes-states/.
[4] Id.
[5] Id.
[6] Id.
[7] Khushbu Shah, What Exactly Is Meals Tax and Why Are Cities Fighting About It?, Eater (Feb. 27, 2015), https://www.eater.com/2015/2/27/8120215/what-is-meals-tax-city-state-government-taxes-sales-tax; Justin Mattingly, An Explanation of the Proposed Meals Tax Increase in Richmond, Richmond Times-Dispatch (Feb. 2, 2018), https://www.richmond.com/news/local/an-explanation-of-the-proposed-meals-tax-increase-in-richmond/article_849c6056-d1dc-5f17-8900-c388d083d425.html.
[8]Lisa Provence, Takeout Equity: Meals Tax Impact on Low-Income Diners, C-Ville, Mar. 18, 2019, https://www.c-ville.com/takeout-equity-meals-tax-impact-on-low-income-diners/.
[9] Howard Chernick, et al., Yes! Consumption Taxes Are Regressive, 43 Challenge 60, 60 (2000), https://www.jstor.org/stable/pdf/40722031.pdf?refreqid=excelsior%3A4c6942b6b451ba2961ad60ff99c3e5d3
[10] Id.
[11] See id. at 61.
[12] See Kimberly Amadeo, Regressive Tax With Examples: How Regressive Taxes Increase Your Costs, The Balance(Mar. 20, 2020), https://www.thebalance.com/regressive-tax-definition-history-effective-rate-4155620.
[13] Id. at 86
[14] Va. Code § 58.1-3833 (2020).
[15] Id.
[16] Id.
[17] Id.
[18] Justin Mattingly, An Explanation of the Proposed Meals Tax Increase in Richmond, Richmond Times-Dispatch (Feb. 2, 2018), https://www.richmond.com/news/local/an-explanation-of-the-proposed-meals-tax-increase-in-richmond/article_849c6056-d1dc-5f17-8900-c388d083d425.html.
[19] Va. Code § 58.1-3833 (2020).
[20] Jared Walczak, Virginia Gives Voters a Say On Meals Taxes, They Usually Say No, Tax Foundation (Nov. 2, 2016), https://taxfoundation.org/virginia-gives-voters-say-meals-taxes-and-they-usually-say-no/.
[21] Id.
[22] Ted Strong, Henrico Votes Yes for Meals Tax This Time, Richmond Times-Dispatch (Nov. 6, 2013), https://www.richmond.com/news/local/henrico-votes-yes-for-meals-tax-this-time/article_107aa54a-4673-11e3-9fdb-0019bb30f31a.html
[23] Sarah Honosky, Campbell County Voters Ok Meals Tax, The News & Advance (Apr. 9, 2019), https://www.newsadvance.com/news/local/campbell-county-voters-ok-meals-tax/article_cba7d7fc-5b2b-11e9-a502-8ff2530c3cec.html
[24] Id.
[25] Id.
[26] Jacob C., The 411 On The Meals Tax, Church Hill People’s News (Feb. 5, 2018) https://chpn.net/2018/02/05/the-411-on-the-meal-tax/.
[27]James A. Bacon, Pitching the Meals Tax to Minorities and the Poor, Bacon’s Rebellion: Reinventing Virginia for the 21st Century (Oct. 25, 2013), https://www.baconsrebellion.com/wp/pitching-the-meals-tax-to-minorities-and-the-poor/.
[28] Emily Leayman, Meals Tax Hike Approved by Alexandria City Council, Patch (May 11, 2018), https://patch.com/virginia/delray/meals-tax-hike-goes-alexandria-city-council; Amy David, Heated Over Proposed Meal Tax Hike, Restaurateurs Form Lobbying Group, RVA Magazine (Jan. 25, 2018), https://rvamag.com/eatdrink/heated-over-proposed-meal-tax-hike-restaurateurs-form-lobbying-group.html.