Local Meals Tax Preemption

Background

The City of Ashland has a five percent tax on all prepared food sold inside the City of Ashland. Other cities have looked into the possibility of meals taxes in order to generate money for city improvement projects. In one case, the City of Eugene passed a meals tax, which the Oregon Restaurant Association (ORA) helped refer to voters, and was defeated at the polls. Salem, Lincoln City, Bend, Medford, Hood River and Cascade Locks are just a few examples of local governments that have considered some type of meals tax. Grants Pass City Council put a sales tax on food to the voters who in turn sent a clear message by voting down the tax proposal by a margin of 77-23. A meals tax went into effect in the city of Yachats on January 14, 2007 and Yachats residents and visitors should be prepared for increases in the tax as the City deems appropriate.

Issue

Local governments are increasingly singling out industries they see as vulnerable and making efforts to subject them to increased local taxes. Meals taxes are an unfair tactic used by local governments singling out a specific industry to act as a tax collector for their local citizens.

Meals taxes are promoted as a way to tax out-of-town visitors. However, statistics show that the vast majority of people who dine out are community members, not out of town visitors. Ninety percent of the restaurants business is derived from the local community.

Any industry-specific meals tax creates government-imposed competitive boundaries. A meals tax creates competitive issues among restaurants. In many jurisdictions, local government boundaries literally place competing establishments across the street from one another. A sales tax on meals is a high visibility tax that will encourage consumers to "go across the street" to avoid the tax.

There is a misperception that dining out is predominantly enjoyed by higher income citizens. Ashland's quick service restaurants, whose customers come from middle to lower income families, collect a majority of the local tax. Additionally, dining out is no longer a luxury. Every day, citizens use prepared food as a way to accommodate their fast-paced life. The myth that fine dining establishment collect high percentages of taxes is not true.

ORA Position

ORA is opposed to any local sales tax imposed on prepared food. New taxes or fees should only be imposed on retail businesses equally, and considerations must be made regarding any competitive disadvantages such taxes may place on local businesses. Allowing local governments to implement misguided tax policies corrupts the environment for any statewide discussions of major tax reform.