Tax on meals pays off for Valley cities, towns who opted in

Friday, April 30, 2010
 
While some Valley communities debate the merits of adopting a new local tax on restaurant meals, the half-dozen cities and towns that have taken the leap are beginning to reap the benefits.

The meals tax, lauded as one of the few ways for municipalities to generate money, is producing better-than-expected results for Northampton and Hadley, and early figures for Amherst show the town is receiving slightly less than it anticipated.

According to the state Department of Revenue, Northampton received $179,500 for the five months from October through February. Should that pace continue through the end of the fiscal year on June 30, the city will approach or exceed DOR's projected estimate of $378,000.

Hadley has collected nearly $81,000 in meal tax revenue, already exceeding the $80,000 DOR predicted the tax would bring in for the town.

Northampton officials earlier this week were concerned that their figures showed a total of only $119,000 received from the state. Those numbers, if accurate, would have meant $80,000 less at the end of the fiscal year than budgeted.

Finance Director Christopher Pile, however, discovered on Thursday that the city accidentally transposed the meals tax payments with that of the payments for an increased tax on hotel rooms. Both taxes are on target to hit estimates by the end of the fiscal year, he said.

"This is a definitely a boost to Northampton, having this option," said Pile. "It was a good thing. It's something we asked for years ago. We finally got it, and it's helping."

Bliss said the department used Census data to estimate how much money municipalities would receive by adopting the new tax. The DOR could not use the meals tax that restaurateurs have paid for years as a guide because that money has never been broken down by geography. Restaurant chains often pay in one lump sum for restaurants they own in various communities throughout the state, Bliss said.

"We always felt it was kind of a conservative estimate," he said. "Generally the estimates have been close, and some communities have done better, actually."

But not all. Amherst has collected $106,800 thus far, and is projected to fall about $25,000 short of its $225,000 estimate, said John Musante, assistant town manager.

Municipal officials lobbied the state for years to allow them to implement local options taxes, particularly on restaurant meals and hotel rooms. Legislators had balked at the idea until last spring's unprecedented budget crisis at both the state and local levels.

The meals tax, which went into effect Oct. 1, added a 0.75 local tax on to the state's 6.25 percent sales tax. Lawmakers also allowed municipalities to increase the local tax on hotel rooms from 4 to 6 percent.
Of the 77 communities that have adopted the taxes, nine are in Hampshire and Franklin counties. In addition to Northampton, Amherst and Hadley, the towns of Hatfield, Deerfield, Sunderland, Gill, Orange and Whately are also imposing the tax.

Several communities have rejected the tax, including South Hadley, Southampton and Easthampton, although officials in the latter community are considering reviving the issue later this spring.

The program started off with a bang, producing more money than anticipated during its first month for the municipalities that adopted it, according to DOR figures.

Adopting the meals tax has been a controversial issue for some cities and towns, particularly as restaurant owners speak out against the measure that has coincided with a difficult time in their industry.

Many of those owners noted that while the local options tax is only .75 percent, it came just two months after state officials increased the state sales tax from 5 to 6.25 percent. That combined 2 percent increase would be enough to convince patrons to stay home, they said.

Meanwhile, a proposal to reduce the state's sales tax and meals tax from 6.25 percent back to 5 percent was killed by House legislators on Wednesday.