Businesses cry foul on meals tax

For the last five years, Angelo’s restaurant on Atwells Avenue in Providence has resisted raising prices, so owner Robert Antignano was disappointed to hear that the state might do it for him through a hike in the restaurant tax.
“For the average person at Angelo’s, this is not a good thing,” Antignano said about the proposed 2 percentage point increase in the meals tax in Gov. Lincoln D. Chafee’s recently released fiscal 2013 budget. “If they have to pay more to come out and eat, maybe they will think twice about it. Maybe they will come once a month instead of twice.”
Like other segments of the business community that have felt unjustly targeted by proposed tax increases in recent years, restaurateurs like Antignano this year are voicing their frustration with Chafee’s proposal, which would raise the tax on restaurant bills from 8 to 10 percent.
It’s one of a series of tax hikes in the governor’s budget that has made business leaders, who in other respects have been sympathetic to Chafee, uncomfortable.
In addition to raising the tax tacked onto restaurant bills, Chafee’s budget would also extend the state’s 7 percent sales tax to now-exempt transactions such as pet supplies, taxi rides, freight shipments, car washes, warehousing, storage and clothing items worth more than $175.
Chafee’s budget also recommends increasing taxes on tobacco from $3.46 to $3.50 for a pack of cigarettes and from 50 cents to $1 per cigar.
And vacation room rentals at bed and breakfasts and other establishments with less than three rooms, now exempt from state hotel tax, would be subject to the tax.
“Gov. Chafee’s blueprint for state spending in 2013 includes some laudable proposals, most notable an increased emphasis on funding education and work force development. However, the Chamber has concerns surrounding the methods identified in the budget for drawing new sources of revenue,” the Greater Providence Chamber of Commerce said in a statement. The statement added that “with Rhode Island’s unemployment rate at 10.8 percent [the third-highest rate in the country], the Chamber does not feel that now is the time to increase taxes that would only depress spending activity in an already sluggish economic recovery.”
While broadening the sales tax is certain to be unpopular with pet owners and those who hire limousines, the meals-tax increase has so far caused the most controversy.
“People are very upset; they feel targeted,” said Dale J. Venturini, president and CEO of the Rhode Island Hospitality Association, about reaction to the tax increase from members. “They are targeting one of the few industries that are holding their own. Right now customers even complain about the extra 1 percent.”
Venturini said the impact of raising the meals tax would be felt across the hospitality industry, from the tips waiters get to which side of the state line customers living near the border choose to get their pizza.
But the most significant impact might be on the state’s competitiveness to attract large events, at which 10 percent of a food-and-drink bill adds up to more than pennies, Venturini said.
“Our biggest concern is in conventions and events,” Venturini said. “When you have a wedding food bill of $60,000, then you are talking about significant amounts of money. We have to remain competitive. When a wedding planner is choosing locations, they are looking at the bottom line.”
One of the companies that could feel the impact of the increase is Newport Harbor Corp., which not only owns several Rhode Island restaurants, but hosts large events at the Newport Yachting Center.
“Where I really see the competitiveness issue is when we try to compete for group business – I think that does have an impact on the bottom line,” said Newport Harbor Corp. CEO Paul O’Reilly. “Rhode Island is on the high side on convention [cost], and this would only exacerbate that problem. When you start to look at large conventions, you start to negatively affect that.” Ken Cussan, director of business development for Newport Harbor Corp., said he was concerned that the higher tax would have a trickle-down effect that could depress overall spending.
“My biggest concern is that the average diner will spend less money,” Cussan said. “The governor’s office has to seek solutions without dipping into the businesses that are already impacted by the slowdown.”
Rhode Island first added a 1 percent meals tax to its existing sales tax in 2003.
In Massachusetts, the state sales and meal tax is now 6.25 percent, but many communities have adopted an optional .75 percent local meals tax that brings the total to 7 percent.
A volunteer committee studying Providence’s tax structure recently recommended the city try to add an additional 1 or 2 percentage point local meals tax on top of the state charge.
In his state-of-the-state speech last week, Chafee acknowledged that the meals-tax increase would be a difficult sell, but said the $39.5 million it is estimated to generate for local public schools is a worthy cause.
In explaining the thinking behind looking to the meals tax for revenue, Chafee-administration officials said it is one area of the economy in which much of the tax would be paid by residents from outside the state and residents can avoid it by eating in.
Director of Administration Richard Licht added in a budget briefing that he didn’t think the additional 2 percent, or 20 cents on a $10 bill, would cause people to change their eating habits.
On Federal Hill in Providence, Antignano said a lot of his business comes from Massachusetts and Connecticut and those customers might think twice about making the trip if Providence restaurants become as expensive as those in Boston or New York.
If they see 10 percent tax, they will stay home,” Antignano said. •

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