Restaurants and grocery stores have played a significant role in our political debates this year. Presidential candidates are promising to end taxes on tips, and Congress is going after food suppliers for purported “price gouging.” But while the national debates focus their proposals (whether effective or not) on relief, Fairfax policymakers are having the opposite debate.
This month, the Fairfax County Board of Supervisors will consider whether the county should adopt a new meals tax (a special tax that apply to purchases of prepared foods for immediate consumption). If enacted, Fairfax County could potentially become one of the most taxed places in the Commonwealth—and in the country—for a family to eat a meal.
Meals taxes are gaining popularity nationwide for an obvious reason: Americans don’t eat at home as much as they used to. Today, 49 percent of food spending is on meals eaten outside of the home.
In most states, prepared food (like brunch at a bistro, a sandwich from a local deli, or a wings platter from a grocery store) is subject to a sales tax. Since most states do not tax groceries (though in Virginia, local governments still do, albeit at a lower rate), and people are shifting from buying food for home to dining out, sales taxes generated from restaurants are increasing. And this trend shows no signs of slowing down. For a policymaker, having a sales tax base that sees consistent growth is extremely desirable—especially in cities where tourism plays a significant role in the economy.
Large cities and counties have a reputation for being expensive, and taxes undoubtedly add to the perception. Today, 13 of the country’s 50 largest jurisdictions impose extra meals taxes on top of their state sales tax and local sales tax—including several in the Commonwealth. Virginia Beach has the third highest combined meals tax rate among major cities at 11.5 percent, only edged out by Chicago (11.75 percent) and Minneapolis (12.03 percent).
The Fairfax County Board of Supervisors is debating a potential meals tax in the range of 1 to 6 percent. With a state and local sales tax of 6 percent, the county could potentially have a combined meals tax rate of 12 percent, nearly on par with Minneapolis and higher than Chicago, Seattle, or Washington, DC.
Taxes are how governments raise revenue, but they are also a tool for competition. And Fairfax County knows that being competitive with Maryland and DC is how you attract new families and new businesses, and even how you make a jurisdiction attractive for business conferences and travelers.
Virginia is alone in the region in allowing all counties to impose meals taxes (Maryland only allows resort areas to establish them, and only certain Virginia cities and towns may do so). And while research does show that meals taxes haven’t historically been a significant impediment to dining out, the Board should consider if the new tax is justified and what message it sends workers moving to the DMV or tourists visiting the nation’s capital regarding where the best place is for them to live, stay, or dine—especially as consumers are increasingly sensitive to the price of food.
Because when it comes down to it, a meals tax is an excise tax. And excise taxes, largely, are implemented when policymakers want to see less of something (such as smoking, drinking, or gambling). Most people, and most governments, see a strong restaurant scene as desirable, not something to curtail.
Restaurants and food suppliers have had an outsized role in our political debates this year, in part because of their important, and increasingly salient, role in our daily lives. The Board should take a hard look at what message a meals tax would send to taxpayers who call Fairfax or Northern Virginia home.
Andrey Yushkov, PhD, is a Senior Policy Analyst at the Center for State Tax Policy at the Tax Foundation in Washington, DC.
