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Restaurant taxes gain weight in cash-strapped cities
New York goes on a diet

 

By Gene Sloan
Copyright 1994 Gannett Company, Inc.
Article date: September 27, 1994
 

Nearly all travelers complain about- or at least know about- the hotel taxes in many cities. But often overlooked are those extra charges tacked on to a restaurant bill.

"People don't pay as much attention as they should," says Rick Webster of the Campaign to Keep Travel Competitive, a watchdog group fighting such taxes.

The latest to get into the act: Washington D.C., one of the nation's top destinations, which this week raises it's restaurant tax to 10%, tying it with Minneapolis and Norfolk, Va., as highest in the USA. Several other cities are not far behind: Chicago, 8.75% in state and local taxes on restaurant meals; San Francisco, 8.5%; New York City, 8.25%.

"Travelers are easy targets because they don't vote (where they spend)," Webster explains.

And that's also why restaurant taxes have never hit the lofty levels of hotel taxes, Webster says. Locally elected officials have long been leery of milking restaurants because, unlike hotels, they're a service used by their own voters as well as tourists, he claims.

Still, financially strapped cities increasingly view meal taxes- in combination with other tourist taxes- as a great way to fund new projects. In Washington, for example, the jump in restaurant and hotel taxes (they also rise this week, from 11% to 13%) will be used to fund a new convention center.

The city's chief financial officer, Ellen O'Connor, concedes that the taxes could cause a short-term loss in visitors, but that long-term benefits will prevail.

"We are losing visitors right now because we don't have a big enough convention center," she says.

Washington officials can take some comfort from the experience of Minneapolis, where restaurant taxes have jumped to 10% from 6% in 1986- with most of the increase devoted to building a convention center.

Despite the increase, conventions in Minneapolis last year drew 263,455 visitors who spent $147 million, says Greg Ortale, president of the city's Convention and Visitors Association. That's up from 125,675 delegates spending $75 million in 1990, the year before the convention center opened.

"I don't believe that the restaurant tax is something that people look at (when they're booking a trip)," Ortale says. "They're more inclined to look at hotel taxes."

Maybe so. But carrying any such increases too far can be risky business. Just ask New York City. When the city and state hiked hotel taxes more than 5% in 1990 to 21.25% (for rooms over $100), convention and meeting business plunged 37% during the next three years. Net result: less overall tax revenue than before the tax was enacted.

"It finally put New York into such a high category that people chose not to come here," says Joseph Spinnato, president of the city's hotel association. "We had letters from major conventions saying they would no longer come to New York."

The city and state finally cried uncle earlier this year. On Sept. 1, the state repealed its 5% tax on rooms over $100. And on Dec. 1, the city lops off an additional 1%.
 

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