2012 Meals and Beverage Tax Position

POSITION:

The Rhode Island Hospitality Association and its Board of Directors oppose a proposal by Governor Lincoln Chafee to raise Rhode Island's Meals and Beverage tax from 8% to 10%, as it will place an undue burden on local businesses, and put the state at a competitive disadvantage.

BACKGROUND:

• The passage of this proposal would result in Rhode Island charging a higher meals and beverage tax than the neighboring states of Massachusetts or Connecticut. Due to Rhode Island's close proximity and easy access to both states, out-of-state residents routinely frequent local restaurants. These guests will likely reconsider their options, choosing instead to dine out closer to home at a lower cost.
• Rhode Islanders have a rich tradition of dining out, with local restaurant sales anchored by strong support from the local community. A $50 restaurant bill is taxed $4 under the present 8% tax. The same bill is taxed $5 under the proposed increase. A family that dines out once a week will be forced to pay an extra $52 a year in tax, which will cause many to reduce the frequency of their meals out.
• Restaurants that wish to lower their prices to offset the tax increase, in an effort to keep guests motivated to continue to dine out, will be hard pressed as they are already struggling to cope with the meteoric rise of the price of commodities. For example, over the last two years, the cost of sugar is up 67%; cooking oil is up 42%; and beef, pork and seafood are up 15%. However, menu prices have increased only 1.5% on average. This tax increase will make it more difficult for small business owners to make a living.
• Restaurants that are able to offer lower prices to offset the additional tax and remain competitive will be forced to find savings in other aspects of the operation, including the possibility of reduced working hours for employees or even staff reductions. Increased unemployment would further contribute to Rhode Island's sputtering economy.
• The earnings of tipped employees will also be reduced. Presently, some guests tip on the pre-tax total while most tip on the post-tax total. Increasing this tax will result in more guests tipping on the pre-tax total. Workers will have less expendable income, and in turn will be forced to reduce the amount of money they put back into the Rhode Island economy through local spending.
• International tourism will decline. The U.S. Department of Commerce predicts an estimated 1.5 million visitors from outside the U.S. will visit the region, setting a new record. International visitors are an important demographic because of their free-spending habits, but a higher meals and beverage tax rate will discourage them from selecting Providence, Newport, and other parts of Rhode Island as their destination.
• The Rhode Island Convention Center competes with more than 300 convention centers nationwide to attract key events, tens of thousands of visitors, and millions in revenue to Providence. Increasing the meals and beverage tax by two percent will raise the cost of hosting an event in Providence versus a different city. Because attendees will be unwilling to pay more and organizers will be unwilling to absorb the increase, Providence will be less likely to be selected to host these profitable events.
• The looming threat of a casino in Massachusetts near the Rhode Island border will provide new dining options which will be competitively priced. A higher tax will encourage many to pass over Rhode Island in favor of this new entertainment destination.
• Restaurants take the responsibility of being a good neighbor very seriously. A National Restaurant Association poll found that 94% of restaurants make charitable contributions to local organizations in the form of money, food, or resources such as talent, time, or a gathering space. However, the fragile state of the economy coupled with a burdensome tax increase threatens the ability of restaurants to provide this generosity.