SOUTH KINGSTOWN – After last year’s rate hike in beach parking fees, Governor Lincoln Chafee’s proposed two percent hike in the meals and beverage tax has added fuel to the fire for the tourism industry along with restaurants who are rallying in opposition against the governor’s tax and spending plan.
Last Tuesday during his State of the State address, the governor proposed an $88 million increase in taxes, including the meals tax, the cigarette tax, sales tax and license fees in his $7.9 billion FY 2013 budget.
Under the proposal, the meals and beverage tax will rise from eight percent to 10 percent to generate $39.5 million statewide. Under current law, the state takes in seven percent, while cities and towns get one percent. The proposal would increase this to nine percent for the state and one percent for cities and towns. In real numbers, if a restaurant’s bill is $10, at an eight percent meals tax, 80 cents will be taxed. At a 10 percent meals tax, $1 will be taxed. Of that dollar, 90 cents will go to the state and 10 cents will go to the restaurant.
Within days of Chafee’s proposal, the Rhode Island Hospitality Association began gathering its troops on the frontline to fight the tax increase. All across Rhode Island rallies against the proposal will be held, including a rally at the Mews Tavern on Feb. 15 at 2:30 p.m.
“Restaurants have had to absorb a lot of food prices and haven’t passed it down to customers. It’s just another price increase that we can’t do on our own,” Dale Venturi, President and CEO of the Rhode Island Hospitality Association.
South County restaurant owners did not hide their disdain last week when news spread that they are targeted for a tax increase.
“A two percent increase isn’t good for anyone in this economic mess we’re in now,” Mike LaBonti, owner of the Station House Restaurant in West Kingston said. “It’s tough enough to get someone to go out to eat now. People already know before they come in the door, the state’s going to hit them.”
He added that the meals tax increase will only chip away at waiters’ and waitresses’ tips that make up their wages.
“They’re fixing the problem on our backs,” Jack Piemonte, Jr. of Cap’n Jack’s on Succotash Road said. “There’s isn’t a lot more money left. It’ll take a bigger event for people to go out and spend some money. It’ll hurt everyone.”
“I think [Chafee’s] nuts. They already increased the tax on us by one percent two years ago. Where did that money go? They don’t want to cut spending, just raise taxes,” Michael Aiello of the Hammerhead Grille and Bon Vue Inn in Narragansett said.
A leader in helping small businesses in South County survive, Joe Iacoi, Executive Director of the Southern Rhode Island Chamber of Commerce spoke out against the proposed meals tax, stating that Rhode Island is already one of the highest taxes states in the country.
“It doesn’t do anything to help the economy, the small businessman and southern Rhode Island. Tourism is such an important economic driver in Rhode Island,” Iacoi said.
The tourism industry, a mainstay in South County, fears as Rhode Island’s taxes rise, its ability to attract tourists from its competing neighbors erodes.
“In Rhode Island, tourism is a leading economic engine. When that’s compromised, we have concerns,” Myrna George, President of South County Tourism Council said. “Forty-one percent of all restaurants’ revenue can be attributed to visitors. We need to give visitors every opportunity to enjoy all Rhode Island has to offer. We need to continue to make sure they come to this state.”
Rhode Island’s current eight percent tax is pitted against Massachusetts’s 6.25 percent state tax and 0.75 percent local option and Connecticut’s 6.25 percent state tax and one percent local tax. In New England, Vermont has the highest meals and beverage tax. Vermont charges a nine percent state tax on meals with a one percent local option tax in addition to a 10 percent tax on alcoholic beverages served in restaurants, according to Paul L.Dion, Chief Officer of the Office of Revenue Analysis in the Department of Revenue.
The governor has paired the two percent hike in meals to pay for education aid to cash strapped schools.
“The governor felt like it he just raised the meals tax and said it would go to the general fund, it wouldn’t get as much support. He felt it was probably easier for people to understand if we actually targeted [the meals tax] to something. It’s going to help fund the state education system. He thought people would be able to appreciate that better,” Dion said.
Under Chafee’s tax and spending plan, he has proposed $38.2 million more in aid to schools. This breaks down to an additional $21.6 million for all 36 school districts and an advance payment of $11.5 million to struggling communities expecting increased aid under the education aid formula. In South Kingstown, the school district will receive a $216,768 increase for its $58.8 million budget approved by the school committee in January under the new proposal. The plan also includes $6 million in categorical, which includes $500,000 for special education students and $1 million for transportation.
Without the $11.5 million to advance the education formula, the second year of the funding formula would cost the state $22 million extra. The funding formula is designed to phase in aid to communities anticipating more over the next seven years, while phasing down aid to communities expecting to lose it over the next 10 years. The governor, however, has maneuvered his budget to increase the phase in portion for communities expecting more without having to increase the phase down for the other communities.
The meals and beverage tax is not the only area to face a tax hike. The five percent hotel tax could expand to bed and breakfasts, the cigarette tax could rise from $3.46 to $3.50 per pack and clothing items over $175 could now be taxed.
The budget proposal has been referred to the House and Senate Finance Committees to be vetted.