Del Ray Cafe Owners Issue Open Letter Pleading with Alexandria City–No New Meals Tax

In a letter to the Mayor and the City Council, longtime residents and respected community leaders and restaurant owners, Margaret and Laurent Janowsky outline their reasons for WHY the City should NOT vote to increase the City Meal Tax from 4% to 5%:

Dear Mayor Silberberg, Vice Mayor Wilson, City Council Members Bailey, Chapman, Lovain, Pepper and Smedberg,

We are frustrated and disheartened to learn that there is a sudden proposal on the table to raise the meal tax because of a recent conversation about affordable housing at a budget discussion. While the topic of affordable housing is necessary and critical to the health of our city, it is a huge leap to discuss placing this burden on the restaurants which, as you should be keenly aware, are primarily small businesses in Alexandria.

While some would argue this isn’t a tax on the business because it’s an add-on tax passed through to the customer, this argument highlights the total lack of understanding of business economics. Here’s the basic economics if it’s been a while since you took a class: The market can only bear a certain price for goods. The more tax you place on the goods, the less the seller gets out of that price. The less the seller gets, the less they can afford to pay the people who work for them (or pay their rent or maybe even stay in business).

With Alexandria’s current 4% meal tax, we are at the same, highest tax rate (10%) in the region as Arlington and Washington, DC. Fairfax County residents soundly defeated a meal tax referendum less than 2 years ago because they knew it was another tax on them. (There is no meal tax in Maryland and its sales tax rate is 6%). Some have tried to argue that this places the tax on visitors, which is ridiculous. In our city, very few, if any, non-hotel restaurants survive from tourists.

Another argument floated was the example that on a $30 meal, this only adds 30 cents. Well, add it to the other 4% already imposed, the total grab by the City becomes $1.50, plus the grab from the state of $1.80, which as you know, already includes 1% that comes back to the City. So, ultimately, the City is getting $1.80 of the $3.30 in taxes. But, let’s compare that to Fairfax which only has the state imposed 6% tax. Their customers would only pay $1.80 in tax on the same $30 meal. If the market can bear a total of $33.30 for the meal, those restaurants now have an extra $1.50 to do things like increase wages or purchase additional equipment. However, if the market cannot bear that $33.30 because really what the customer has to spend is $30, then their dollars will go farther in Fairfax County than in Alexandria.

Let’s look at the bigger picture now. Let’s say a restaurant is generating $100,000 of monthly sales. They are already required to collect $10,000 in sales and meal taxes, $5,000 of which comes to the City. Another 1% is obviously another $1,000 per month or $12,000 a year. In Fairfax or PG County, the restaurants already have the extra 4%/month, $48,000/year because they don’t have the meal tax; under the proposal, they would have an extra $60,000 per year! Think about the raises or additional employees that kind of money can pay for?!?

However, the real issue here is that it isn’t the restaurants who should be bearing the burden of years of the City not requiring developers to contribute enough to the affordable housing inventory. While massive developments occurred in Cameron Station, Potomac Yards, Carlyle and around Braddock Rd Metro/Route 1 North, the affordable housing inventory continued to shrink exponentially. The real source of funds and units should be all residential development/redevelopment in the City – NOT the small businesses which seem to be under a constant barrage from the City. First the proposed BID, now this.

We’ve even heard an outrageous suggestion that the restaurants should bear the burden because we employ the people who live in the affordable housing! We cannot imagine many businesses or public service thriving without the people who live in affordable housing. One of the biggest outcries has been that our teachers, police and fire fighters can’t afford to live here. Perhaps an affordable housing line item should be added to each of those budgets!

We feel this proposed meal tax increase sounds like an “easy” fix but anyone who suggests it is clearly can’t see the forest for the trees. Because it seems “easy” now, its imposition will have long-term implications on the City’s ability to attract and retain restaurants, one of the few businesses that won’t be replaced by internet shopping in the foreseeable future – in other words, one of the most desirable business types for maintaining the City’s attractiveness to residents and visitors alike. If you move forward with imposing this additional tax (and even the discussion of it now), it further darkens an already sullied image of how difficult it is to do business here. It is the wrong approach and should be abandoned immediately.

Sincerely,

Margaret and Laurent Janowsky