Don't grow meals tax, restaurateurs plead
It's May 5. Restaurateurs say rising meals taxes is hurting their business -- one says he pays more in taxes than he makes in profit. Sentara program visits elderly patients at home.
Williamsburg-area restaurateurs who say they are still struggling to recover from the Covid pandemic’s economic upheaval now face the impact of increased meals taxes across the area.
The city of Williamsburg increased its meals tax from 6% to 6.5% at the start of the year. York County is slated to vote today on raising its meals tax by 50%, from 4 to 6 percent. James City is looking to follow York County next week when it approves its 2027 budget, which starts July 1.
Added to the 7% diners already pay for combined state sales and regional tourism marketing taxes, that adds 13% to the cost of a meal before tips.
“Our industry is still in recovery mode,” Rachel Sears, executive director of the Williamsburg Area Restaurant Association, told the James City County’s board of supervisors last week.
Sears said she’s heard from one restaurant owner who said he used to operate at an 18% profit margin before the Covid pandemic disrupted business and inflation kicked up. Now, she said, his margin is 8%.
“The state and the city collect more tax on each guest than the restaurant does in profit,” Adams told us. She said this restaurateur told her 60% of his business comes from local residents.
Patrons who see the markup from taxes may also cut back on tipping, which hurts the restaurant servers who depend on tips for income, Adams said.
Local elected officials say the meals tax in our area is shared with tourists who come here. But Adams, whose group represents more than 100 restaurants, said a majority of regular restaurant patrons are local residents.
The Virginia Restaurant, Lodging and Travel Association released a study of tax impacts across the state earlier this year that showed rising meals taxes have caused consumers to eat out less often and purchase less alcohol.
“Rising labor costs, inflationary pressures, and shifting consumer behavior are already stretching operators thin,” said Eric Terry, president of the VRLTA. “And layered, prohibitive local taxes only compound those challenges—making it harder for restaurants, hotels, and travel-related businesses to achieve sustainable success across the Commonwealth.”
Mary Ellen Power, whose family owns the Fat Canary restaurant on Merchants Square, said more than 19% of independently owned restaurants have gone out of business since Covid.
She said her restaurant is only open five nights a week, instead of all week, because of staffing shortages that began during the pandemic.
“Given that restaurants are still not back to 100%, it is shocking that the city and now the county would choose to increase the meals tax at this time,” Power told us.
Stephen Slivinski, a senior fellow at the libertarian Cato Institute who focuses on state and local government barriers to economic growth, said any sales tax is regressive, hurting those with the lowest income.
Families with lower income spend a larger percentage of their income on purchases, so “any tax increases are going to hit them hardest.”
Home medical visits part of expanding Sentara program
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