The Truth-O-Meter Says:
Elkhay

If Rhode Island raises the meal and beverage tax to 10 percent, it would be the "fourth-highest in the nation."

John Elkhay on Wednesday, March 21st, 2012 in a rally.

Providence restaurateur John Elkhay says that if Rhode Island raises the state meal and beverage tax to 10 percent, it would be the fourth-highest in the nation

At a recent rally in Providence against a proposal to raise Rhode Island’s meal and beverage tax, restaurant owners and staff gathered with dozens of other protesters on the State House lawn and marched to Waterplace Park, where they "dumped" 30 pounds of tea into the Woonasquatucket River.

This was no Boston Tea Party -- the tea was sealed in a plastic bag and attached to a rope so it was easily retrieved from the river -- but the protesters at the March 21 rally shouted their message for all to hear: Governor Chafee’s plan to hike the tax from 8 percent to 10 percent would discourage people from eating out and harm the state’s hospitality industry.

Providence restaurateur John Elkhay, of the Chow Fun Food Group, was at the head of the march, leading the crowd in chants against the tax increase. At one point, he yelled out that a 10 percent meal and beverage tax in Rhode Island would be the "fourth-highest in the nation."

The Ocean State has developed a reputation for high taxes. We’ve already written about the property tax burden in the state, specifically Providence’s dubious distinction of having the second-highest commercial property tax burden in the country. But we hadn’t heard claims about the state meal tax before.

We left a message for Elkhay, whose restaurants include XO Cafe, Rick’s Roadhouse and Luxe Burger Bar. Then we did our own research.

Meal taxes are also sometimes known as "restaurant taxes" or "prepared-food taxes" and are generally levied on top of sales taxes. Meal taxes do not refer to taxing groceries, or "non-prepared food." In fact, groceries are completely or partly exempt from sales taxes in nearly all states, including Rhode Island.

The General Assembly created Rhode Island’s meal and beverage tax in 2003 as a way to tamp down local property tax increases. The 1-percent tax is imposed on top of the state’s 7-percent sales tax. Revenue from the 1-percent tax goes to cities and towns while revenue from the 7-percent tax goes to the state.

Add the taxes together and diners pay an 8-percent tax when eating out in Rhode Island. Chafee’s plan is to raise the meal tax to 3 percent for a total tax of 10 percent.

Most other states allow a similar tax but it’s more commonly levied by individual municipalities. For example, at the height of the recession in 2009 the state legislature in Massachusetts passed a bill allowing cities and towns to impose a 0.75 percent meal tax on top of the state’s 6.25 percent sales tax. By the following year, more than 70 communities had adopted the meal tax to supplement their budgets.

Elsewhere in New England, New Hampshire and Vermont both have a statewide meal tax of 9 percent. Maine’s is 7 percent. Connecticut, where the sales tax is 6.35 percent, has no special meal tax.

Because meal taxes are generally levied on the municipal level, the studies we found compared rates in cities rather than states.

The most recent study was released earlier this month by the Tax Foundation, a business-backed tax policy group based in Washington, D.C. It examined the tax in the 50 most populous cities in the nation (35 of which don’t have a special meal tax, just a sales tax).

At the top of the list was Minneapolis, which imposes a 3 percent meal tax on top of the city’s 7.775 sales tax for a total tax of 10.775 percent. Chicago was second with a 1.25 percent meal tax on top of a 9.5 percent sales tax for a total tax of 10.75 percent. And Virginia Beach was third with a whopping 5.5 percent meal tax on top of a 5 percent sales tax for a total tax of 10.5 percent.

Washington, D.C., and Seattle were tied for fourth with a total tax on restaurant meals of 10 percent -- the same rate Rhode Island would have under Chafee’s proposal.

We asked the Tax Foundation if it could break out the states that impose a meal tax statewide so we could make an apples-to-apples comparison with Rhode Island’s rate, but the foundation did not have that information.

The Washington, D.C.-based National Restaurant Association gave us a different national study on meal taxes, this one done by researchers at the University of Denver in 2007. Although its ranking was similar to the one done by the Tax Foundation, parts of it were outdated. So for this item, we’ve chosen to rely on the Tax Foundation study.

It’s important to note that Rhode Island’s high ranking for its meal tax is driven by the state’s high sales tax. At 7 percent, Rhode Island has the second-highest statewide sales tax in the country, behind only California.

Slap on another 1 percent  -- or 3 percent with Chafee’s latest proposal -- and you’re in double digits when it comes to meals.

Other states do assess higher taxes for meals.

In Virginia, localities are allowed a meal tax of up to 6.5 percent on top of a 5-percent sales tax. In Richmond, which isn’t large enough to have made the lists from the Tax Foundation or the University of Denver, the total tax is 11 percent. Eight other small municipalities in that state levy the full 11.5 percent tax.

When a spokeswoman for Elkhay got back to us, she said that he got the information on meal taxes in other states from the same sources we found -- the recent Tax Foundation study and the older report from the University of Denver.

Our ruling

Restaurateur John Elkhay says Governor Chafee’s proposed 10-percent meal and beverage tax would be the "fourth-highest in the nation."

Most meal taxes in other states are applied by cities and towns, so a comparison should take in those localized rates. And according to the most recent study from the Tax Foundation, a 10 percent rate in Rhode Island would be tied for fourth-highest in the nation.

But shoehorning Rhode Island into the list is imperfect, because it’s not an apples-to-apples comparison.

And there’s another issue, too. The Tax Foundation list considered only the 50 most populous cities in the nation, so it didn’t take into account every meal tax imposed in every locality. In Virginia alone, we found nine smaller communities that would make it to the top of the Tax Foundation list.

Elkhay’s statement is partially accurate -- increasing Rhode Island’s meal tax would make it one of the highest rates in the country. But we can’t say definitively that it would be fourth-highest. Because the claim "leaves out important details or takes things out of context," we rate it Half True.

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About this statement:

Published: Sunday, April 1st, 2012 at 6:00 a.m.

Subjects: City Budget, Economy, State Budget, Taxes

Sources:

The Providence Journal, "Restaurant community decries meal tax plan," Feb. 16, 2012, accessed March 28, 2012

RILIN.State.RI.US/Statutes, "Title 44 Taxation: Section 44-18-18.1 Local meals and beverage tax," 2003, accessed March 28, 2012

Boston.com, "One in five communities enact local meal tax," The Boston Globe, March 7, 2010, accessed March 27, 2012

TaxFoundation.org, "Meals Taxes in Major U.S. Cities," March 1, 2012, accessed March 22, 2012

Email, Joseph D. Henchman, vice president of legal and state projects, Tax Foundation, March 28, 2012

Interview and emails, Katie Laning Niebaum, director, advocacy communications, National Restaurant Association, March 27, 2012

"Survey of U.S. State and City Governments Taxing Policies on Selected Travel & Tourism Goods and Services," Center for Travel and Tourism, Daniels College of Business, University of Denver, July 2007, accessed March 27, 2012

RichmondMagazine.com, "A Bite Too Big?," May 2008, accessed March 27, 2012

Emails, Kate Barba, deputy team leader, Regan Communications Group, March 27, 2012

Emails, Lisa Doucet-Albert, senior vice president, Regan Commuinications Group, March 27-28, 2012

Written by: Alex Kuffner
Researched by: Alex Kuffner
Edited by: Tim Murphy

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