Contentious meals tax worries county’s small business owners

Fairfax County Times

By Jimmy Henderson

Small businesses, restaurant industry workers, and restaurant-goers are reeling at the possibility of a meals tax, which will be presented before the Board of Supervisors Budget Committee at its Sept. 17 meeting. Inflation and an increased real estate tax passed earlier this year already have residents feeling the squeeze. This new proposal was a bridge too far for some of its prominent opponents. 

Fairfax residents have roundly rejected referendums for tax on meals and prepared foods in 1992 and 2016, and Fairfax Families Against the Food Tax launched a campaign to remind the Board of just that. Springfield District Supervisor Pat Herrity, the sole dissenting vote in the Board’s decision on this tax, said the community has already spoken when they voted against it, but won’t get the chance this time.

“The worst is the Board went behind the residents’ back and had the General Assembly remove the people from the process,” Herrity said.

Under a 2020 Virginia law passed by the General Assembly, the county could impose a tax on meals between 1% and as much as 6% without appearing on a ballot. According to the group, if the tax is implemented, residents could pay up to 12% more on foods prepared and ready to eat at restaurants and grocery stores, beer and wine served at breweries and wineries, concessions at movies and sports arenas, and more. 

Herrity said restaurant workers are frustrated at the return of this issue.

“They are angry because they’ve fought this battle once before,” Herrity said. “And the people weighed in, and they’re angry because now they have to do it again, and the people have been taken out of the equation. You’ve got to remember, this isn’t just on McDonald’s. It’s on your takeout and grocery stores. It’s on breweries and wineries. I mean, it’s on food and drink. Any prepared food and drink.”

Mezeh Mediterranean Grill owner Waria Salhi said this tax comes at a critical time for diners and industry workers alike.

“Industry studies show that rising prices are driving customers away, forcing them to make tough choices about dining out,” Salhi said. “We’re also struggling with the impact of inflation.”

Salhi said restaurants already operate on slim profit margins between 3% and 5%.

“To stay in business, we must adjust our prices to cover these increases,” Salhi said. “Adding another 2 to 6% in taxes will significantly hurt our business and could impact Fairfax diners even more.”

Chairman Jeff McKay, Sully District Supervisor Kathy Smith, and Providence District Supervisor Dahlia Palchik moved that the Board direct the County Executive to report to the Board, at its Sept. 17, Budget Committee meeting, with all options for revenue diversification, including the implementation of a meals tax. According to a 2014 Fairfax County Meals Tax White Paper, a 4% meals tax would mean a $90 million tax increase, with residents bearing the brunt of it, paying 72%.

The Restaurant Association Metropolitan Washington cited Bureau of Labor Statistics and National Restaurant Association data from 2011, which said lower-income families feel the pain of paying this tax. Census Bureau and AARP data from the paper highlight retirees living on fixed incomes who will pay a larger share of this tax since seniors tend to dine out more than younger residents. Herrity expanded on the fiscal challenge posed to older residents.

“They again become the hardest hit,” Herrity said. “Senior citizens are getting taxed out of the county by the real estate tax, especially them on their own. Now that the real estate tax is to the point now that they’re more than the price that their mortgages used to be.”

RAMW said its members reported a staffing reduction of about 17% at restaurants in jurisdictions where a meal tax is imposed. In a case study, they also noted that tipped employees lose around 20% of their income to meal taxes. 

Annandale restaurant Jang Won owner Duk Man Kim sees great risk for small businesses like his if the meals tax is adopted.

“We do not have the luxury of operating on a large scale, or in multiple jurisdictions,” Kim said. “Making ends meet as a business owner versus having to close often comes down to small variations in customer traffic. Having to raise the price for consumers on their bill due to the county pushing this tax will make [the] task even harder.”

A RAMW case study of a restaurant group with establishments in Fairfax County and Arlington found that in the 20 years since imposing a meals tax, the Arlington location fell behind in sales by $3 million.

In the fiscal year 2023, Fairfax County’s General Revenue fund was expected to increase by 3.24%, but exceeded those expectations at 4.76%. Despite this, Palchik, Smith, and McKay told the Board in a letter that they can’t leave any tools in their revenue diversification toolbox, including a potential meals tax. They asked the county executive to develop a draft community outreach strategy and said they expect restaurants and businesses to be “substantively included in the process.” 

Herrity highlighted the recent bag tax, the increased cost of used cars since the pandemic, and rising personal property and real estate taxes, which increase the financial burden on the people who live, work, and play here.

“It’s made Fairfax County unaffordable for many of our residents,” Herrity said. “And that’s why it’s important to stop here. Not only that. This is a single-industry tax that affects an industry that is struggling.”