Campbell County Meals Tax Would Raise Taxes from 5.3% to 9.3% on Prepared Food

Two Campbell County residents have proposed raising taxes on prepared food and beverage through an additional meals tax, according to a report from local ABC affiliate WSET.

The tax hike would add an additional 4 percent tax to all prepared food and beverage sold outside the towns of Altavista and Brookneal, on top of the existing 5.3 percent sales tax, for a new combined tax rate of 9.3 percent, representing a 75 percent increase over current levels.

Under Virginia law, the levy would apply to all prepared food and beverage sold within the county. This includes meals in restaurants, carry-out, fast food, as well as prepared food in grocery stores and delicatessens. It also includes some food sold in fundraisers at churches, benevolent clubs, as well as charitable, educational, and fraternal organizations.

The organizers, Meagan Bullington and Michael Nagy, estimate the tax increase would raise $2 million annually.

The proposed tax hike requires approval in a ballot referendum. However, the question will not appear on the ballot if the organizers fail to collect the roughly 3800 petition signatures, or 10 percent of registered voters, required under Virginia law.

Campbell County last attempted to impose a meals tax in 2012. That referendum failed, with 61.1 percent of voters opposed. In total, only 9026 voters supported the tax hike. Obtaining signatures from 3800 voters – or about 42 percent of those who voted yes previously – could prove a challenge for the organizers.

Opponents of meals taxes note their disproportionate impact on poor and working-class families, who spend a higher percentage of their income on food than more affluent households. Although meals taxes are commonly portrayed as an “optional” expense on fine dining, Virginia law applies them to all prepared food, including ready-made meals brought home by working parents after a long day on the job.

Under Virginia law, the carry-out rotisserie chicken from Food Lion faces the same tax as the filet at Ruth’s Chris Steakhouse.

For working parents – particularly those in single-parent households – taxes on prepared food are not an avoidable luxury. Rather, they represent an increase in the cost of the family’s food budget, when prepared food becomes a necessity between busy days on the job and evening activities with the kids.

The proposal will also raise concerns among restaurant wait staff, who case studies show are hurt most by meals taxes.

Servers will see reduced tip income as a result of the tax hike. Tipping itself is inexact. Though some diners apply a hard and fast percentage and have ample income to pay, many diners – whether consciously or subconsciously – reduce their tips to compensate for the increased cost of the meal.

The reason for this effect is simple: diners perceive the cost of the meal as the price on the menu, and have limited willingness or ability to shoulder post-meal costs such as taxes and tips. For diners on a budget, rounding down to accommodate for the cost of the additional tax comes at the expense of hard-working wait staff, even if only by a dollar here and two dollars there.

For servers, those dollars add up – table by table, shift by shift, week by week.

One case study from Northern Virginia found a nearly 20 percent reduction in wages for wait staff following the imposition of the same meals tax under consideration in Campbell County.

The end result is that this tax burden falls disproportionately on working parents and restaurant servers, rather than high-income diners with disposable income.

Local restaurants won’t be spared either.

According to data from the National Restaurant Association, the average profit margin for a restaurant is 3-4 percent in this highly competitive sector.

The proposed tax hike roughly equals the entirety of the average restaurant’s profits. Those which cannot pass this cost to customers or wait staff will see their profits wiped out and close.

Meals are already taxed at 5.3 percent. Adding an additional 4 percent brings the tax on prepared food to 9.3 percent.

Or, in other words, government would make between two and three times as much profit from a restaurant than its owner just from the variable taxes, not even accounting for fixed items like property taxes, BPOL taxes, and other fees – assuming that owner manages to stay in business. Few other sectors face such a burden because few other sectors can shoulder such a heavy burden.

Generally, the only sectors where government makes much more than business owners are tobacco, alcohol, oil, and gambling.

Should the local diner really be lumped in with cash cows like Philip Morris or Caesar’s Palace?

When combined with property taxes, payroll taxes, income taxes, BPOL taxes, utility taxes, license and inspection fees, and many other government-imposed costs of doing business, this tax could push struggling local restaurants over the edge, resulting in business closures and job losses. For an industry with high failure rates and large startup costs, forcing this tax increase on one sector rather than distributing it evenly across the county concentrates the economic damage to a low-margin industry whose tip-reliant staff cannot afford it.

Who is more likely to go under first: McDonald’s and Burger King, or Perky’s and the Courthouse Cafe?

Given prior election results, the proposed tax hike faces a steep uphill climb. If organizers manage to collect the 3800 voter signatures for ballot access, they still must overcome the 22-point defeat from 2012. Will Campbell County Residents be more willing now than four years ago to increase this tax by 75 percent?

While Virginia law sets no deadline for filing the required signatures, Campbell County voters could know soon whether this question will appear on November’s ballot.