A meal excise tax measure that should be excised

There's an article on the Special Town Meeting Warrant that Town Meeting isn't even going to get a chance to approve or reject, but I'll discuss it here nonetheless.

It's warrant article 2009/10 5-8, and, if enacted, it would allow the Town to take advantage of a new law that allows cities and towns in the Commonwealth to impose a .75 percent local sales tax on meals. The State Legislature passed this law last spring, as it attempted to close a several billion dollar budget gap. In addition to passing this local sales tax option, it raised taxes by $663 million, took advantage of additional federal funding made available through the American Reinvestment and Recovery Act (ARRA) and federal Medicaid reimbursements (FMAP), and tapped $1.6 billion from “State Fiscal Stabilization Funds” made available primarily to support education funding.

The idea behind the local sales tax option was to provide local municipalities with a way to raise additional revenue in what has been, and is sure to be in the coming months, difficult fiscal times here in the Commonwealth. A city or town may impose a local sales tax on the sale of restaurant meals originating within the city or town by a vendor at the rate of .75 percent of the gross receipts of the vendor from the sale of restaurant meals. Thirty-four cities and towns in Massachusetts are already taking advantage of this new tax.

This local excise, if passed by Town Meeting, would be imposed in addition to the 6.25% state sales tax on meals, and would take effect on December 1. According to the Masachusetts Department of Revenue’s Division of Local Services, Hamilton could have generated an additional $32,000 in revenue had it adopted the tax by August 31. Instead, the additional revenue is estimated to be about $25,000.

The Town would need to immediately notify the Department of Revenue’s Division of Local Services that it passed the measure, and the DOR will request the Town to verify a list of meals tax vendors licensed to do business in that city or town. The verified information will be used by DOR to notify vendors of their obligations to collect and pay over the local excise and to ensure that sales are properly sourced to each community.

Reimbursement for the local meals tax must be paid by the purchaser to the vendor. Each vendor in the Commonwealth must add the tax to the sales price of the meal and collect from the purchaser the full amount of the tax imposed. For a $5 purchase at Dunkin Donuts, consumers would pay an additional four cents in sales tax. For a $20 order of two pizzas and a two litre bottle of Coke at the House of Pizza, that's an additional 15¢. For a $75 dinner at the Black Cow, that's an additional 56¢ in sales taxes. For a $1000 event catered by the Hungry Fox, that's an additional $7.50 in sales taxes that you'd have to pay.

Spending less than a dollar more in sales taxes might not seem like a lot, but it will hurt local businesses. Think of it this way: the sales tax at the Black Cow would be 7 percent, while the sales tax at Sylvans Street Grille in Danvers would be 6.25 percent. The sales tax at Woodman's in Essex would be 6.25 percent. The sales tax at Nick's Roast Beef in Beverly would be 6.25 percent. That puts local restaurants at a competitive disadvantage. And while an extra 56¢ wouldn't necessarily cause a family to eat elsewhere, it might prevent them from ordering a second glass of wine. Or a dessert. In short, this tax would hurt local businesses. And it unfairly targets one industry, an industry that provides local jobs and often operates with very low profit margins.

Both the Finance Advisory Committee and the Board of Selectmen recommend no action on this article. That usually means that whoever asked that the article be added to the warrant has second thoughts and doesn't want Town Meeting to vote on it. In parliamentary parlance, it's like withdrawing a request. When the article comes up for consideration at Town Meeting, Moderator Bruce Ramsey will read the article, and someone (probably the sponsor of the article) will immediately introduce a motion to take no action.

Someone else will second the motion, and then, during discussion, both the Finance Advisory Committee and Board of Selectmen will recommend that Town Meeting vote in favor of the motion to take no action. Once discussion closes, Town Meeting will take a vote. If a majority of those in attendance vote in favor, the motion will carry and no action will be taken. So, I recommend that Town Meeting take no action on this article.