Translate[Archived] Question #12: Please provide an update to the Meals Tax Rebate memo distributed May 8, 2018.
Question:
Please provide an update to the Meals Tax Rebate memo distributed May 8, 2018. (Mayor Wilson)
Response:
The purpose of this memorandum is to update City Council of the status of the Meals tax rebate, or seller’s commission, to restaurants as compensation for collecting the trustee tax on behalf of the City. A rebate or seller’s commission allows restauranteurs to retain a portion of the tax revenue collected from the customer and is permitted under Virginia law but is not required. Attachment 1 provides a sampling of rebates in other jurisdictions based on an informal telephone survey conducted by the Department of Finance last May.
In FY 2019, the City of Richmond adopted a 1.5 percent rebate concurrent with a Meals Tax rate increase. Per Attachment 2, Richmond further adopted that it was the intent of the Richmond Council to amend the rebate as part of its deliberation on the FY 2020 budget “to increase the commission authorized from 1.5 percent to three percent.” Richmond staff expressed concern about the precedent this may create for other trustee taxes.
A 1.5 percent Meals Tax rebate in the City of Alexandria would reduce FY 2020 revenue by approximately $360,000 of which $72,000 would be attributable to the affordable housing initiative. A three percent rebate would reduce revenue by approximately $720,000 of which $144,000 would be attributable to the affordable housing initiative. These reductions would reduce both the General Fund and Meals tax funds dedicated to the Affordable Housing Initiatives. If extended to Transient Lodging and Admissions taxes, the rebate would reduce General Fund revenue by another $196,050 to $392,100, at 1.5 percent or 3 percent.
The current Meals tax process has been in place in the City of Alexandria for more than 40 years without a seller’s rebate, and staff does not recommend one at this time. In Richmond, the rebate was advanced as an offset to increased credit card charges associated with the Meals tax rate increase. However, the rebate applies to both cash, echeck, and credit card payments. It appears that restaurants generally pay around 2-3% in credit card processing fees.
If Council approved a seller’s commission on the meals tax, hotels would likely press for the same treatment for transient occupancy taxes. A 1.5 percent commission on hotel transient occupancy taxes would cost $186,000 and a 3 percent commission would cost $372,000.
If Council were to consider this adjustment in Add/Delete it would require an ordinance separate from the budget adoption resolution.
ATTACHMENTS:
Attachment 1 – Meals Tax Rebates in other Jurisdictions
Attachment 2 – Richmond Meals Tax Rebate Ordinance
Attachment 3 – Meals Tax Rebate Memo - May 8, 2018