2012-02-23 / Front Page

Restaurant owners not happy about Chafee’s proposition

New sales tax in governor’s budget proposal would add 2 percent to hospitality bills

Governor Lincoln Chafee has asked for an increase in the state sales tax on prepared food and beverages in his latest budget proposal. The increase would be from the current rate of 8 percent to 10 percent, making it one of the highest such tax in the nation. Jamestown restaurant owners are not happy about the idea.

“I certainly am not for it,” said Phyllis Bedard, who owns Trattoria Simpatico. “It seems that Rhode Island has been a hospitality and tourism state and this is one of the last businesses they have available. It will significantly affect dining out and it will significantly affect the staff. Their tips will be lower. It’s going to have a significant impact. That’s an incredibly high sales tax.”

Bedard pointed to the recently approved toll increase on the Newport Bridge as another example of targeting the hospitality business. “It seems that between how they raise money on the bridges in South County, and now this, it’s just another setback for the restaurant industry.”

Chopmist Charlie’s owner Chuck Masso voiced similar sentiments. “I don’t think it’s a good idea,” he said. “It’s almost like an act of desperation. I know that the Rhode Island Hospitality Association is working very hard on fighting this.”

Masso also agreed with Bedard that restaurant servers would see their tips decrease if the increase is approved. “I think that people who might be tipping anywhere from 15 to 18 percent may start tipping in a 10 to 15 percent range if we’re lucky.”

Masso said that the hospitality association is providing table tents to be placed at restaurants to inform customers about the pending increase, as well as making a petition in opposition to the increase available for them to sign.

“They’re going around to every restaurant in the state and asking them to get involved in it,” Masso said.

Presently the municipality receives 1 percent of the restaurant sales tax and the balance is sent to the state. Bedard considered the affect the increased tax might have on Jamestown’s finances. “The town will feel it,” she said. “The whole state will feel it because business will drop off. You are discouraging people from bordering states to come over and dine. They can go over to Connecticut or go over the line to Massachusetts and not be faced with the same kind of tax. It’s very discouraging as a business owner to watch this happen, especially in this industry when things are so tight and our food costs are so high right now.”

Bedard reflected on the fact that the proposed increase comes at a time when restaurant owners are already having enough difficulty staying on an even keel. She said that this has been a difficult year because of the bad weather in the spring. Also, when Hurricane Irene hit the coast, a lot of the yachts were pulled out of the water. She said that her restaurant was open all winter and they brought in the same amount of business as last year, even though she expected an increase because of the good summer climate. “The truth of the matter is, people are going away anyhow,” she said.

“I think it’s going to have an impact statewide,” said Masso. “It’s disposable income that people use for dining out and with that size of an increase they may not be as frequent a customer to food and beverage establishments.”

Stacy Feight, owner of the East Ferry Deli, also agreed that the tax increase is absurd. She said that the petition opposing it will be posted in her restaurant. “People will look at it as all of the food going up in price,” she said. “People are going to think that prices are too high and they’re not going to want to spend as much money.”

“I think that it’s unfair and short sighted,” said Slice of Heaven owner Steve Liebhauser. “I think that if things like education need to be paid for, everybody across the board should share in that.” He said that if the state is going to increase taxes, it should tax everybody. “This idea of sticking it to restaurants and the hospitality trade is ridiculous.”

Liebhauser added that he has yet to see any benefits from the 1 percent tax that has already been instituted, which goes directly to the town or city.

“Where’s that money?” Liebhauser asked. “Nobody knows as far as I can tell. I haven’t heard any great benefits to the community from the 1 percent, but maybe I’m not looking hard enough.”

He continued: “It’s not really going to bother a little business like mine, but it is going to bother people when they go to pay a big bill, like for a function or something. They chose Rhode Island and at the end of the day they get this bill with the 10 percent. You’re talking about a tax bill that’s coming close to $1,000. They’re not going to come back, period.”

Jamestown Town Council member Bob Bowen weighed in on the controversy from a town perspective. “Our restaurants and businesses that sell food are doing a pretty good job of weathering this recession,” he said. “I think that this is an unfortunate attempt to put some of the burden of recovery of the state on the backs of these individual businesses. I don’t think it’s an appropriate expansion of what we have, which is a successful 1 percent tax.”

According to Bowen, the state currently collects the 8 percent tax and returns 1 percent to the town of origin. Under the new proposal, the new revenue received by the state as a result of the 2 percent increase – estimated to be a $38.4 million – will be directed toward education, including higher education. Some of the money will be returned to the towns for education according to a formula based on the needs of the towns, and not in accordance to how it was collected. On this basis it is unlikely that Jamestown will see any of the new revenue.

“It is possible that the money that was collected in Jamestown will be used to go into school communities that don’t have a lot of restaurant revenue,” Bowen said. “It will be a redistribution of that 2 percent, not like the 1 percent that was added on a few years ago.”

Bowen does not agree that the 1 percent that is currently returned to the town was ever supposed to be earmarked to benefit the local hospitality industry. Despite that, he says that he has been attempting to get a large portion of the tax earmarked for that purpose during his time in office. He also says that some of restaurant tax money was used to help the Chamber of Commerce pay for new signs welcoming visitors to Jamestown.

“I would think they could find other creative ways to find the money rather than hitting the same industry over and over and over again,” Bedard said. “They do affect us when they put the tolls up on the bridge, and now this. It might impact a decision on whether people want to come to Rhode Island and spend the extra money, coming over the bridge and then being hit with the extra sales tax. That’s pretty heavy duty.”

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