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February 22, 2008
The Memphis Restaurant Association, its members, and customers strongly oppose the proposed 2% Prepared Food & Beverage Tax, and are writing you today to urge your opposition to this legislation. We not only believe this is a flatly unfair tax to an industry already saddled with immense regulatory and tax burdens, but also that this will be a detriment to the local economy, cause potential job losses, business closures and will open the door to future taxation by amending State law. In discussions with Mayor Wharton and other County representatives, all admitted that “there is no way we will tax our way out of this problem…the only way is to grow our way out of it.” Yet, the action taken by Mayor Wharton and the County Commission is to propose this tax rather than seek an answer that promotes economic growth. The negative ramifications of implementing this tax to our local economy, businesses and, ultimately, Shelby County voters are evidence enough to abandon this course and begin seeking a positive measure that will result in stability and growth for Shelby County. Again, we urge you to consider carefully the issues proposed and the foreseeable results and oppose this measure as our representative.
In examining the reasoning for this proposal, there are several inherent flaws. Mayor Wharton claims to be hamstrung by state regulations requiring specific expenditures go to predetermined areas of the County budget which has resulted, in part, in the stated $14M shortfall. While these regulations may exist, lack of accountability for spending in each of these areas is the real culprit. Each year, rather than spend what is needed, not what is budgeted, each department is forced to choose between spending all of their allotted monies, needed or not, or having their budgets cut the following year. How, if this is the case, will we not have a shortfall every year? This, when the $14M shortfall is made up of over $11.4M in salary increases, current employee benefit increases and increased benefits for retired County employees. In our business, mismanagement, no matter what the excuse, does not result in awarding salary and benefit increases. Why should this be the case for our elected representatives? Lastly, let’s assume that this shortfall was a legitimate need of the County. The proposed tax, even by conservative County estimates, is projected to raise $28M based on last years food and beverage sales numbers. Given the track record of past and current County fiscal leadership, it is hard to understand why constituents or legislative representatives like yourself would approve a measure that puts double the amount funds “needed” into County coffers. If county officials are pushed to spend all monies budgeted rather than work to cut expenditures and stay under budget, won’t this result in yet another shortfall next year of $28M?
Though it is obvious to the MRA that the justification for even proposing this tax legislation is flawed, there are numerous other reasons that the implementation of such a tax will be harmful rather than beneficial. Even in the best of times, it is unfair to single out one industry to bear the burden of all citizens of the County. Today, however, the food service industry is certainly not enjoying the best of times. The impact of our current volatile economy is being felt in all ranks of our industry and potentially threatens the livelihood of even the most stable businesses. Our industry has only just begun to see the negative impacts of the national minimum wage increase. The recent statewide smoking ban has negatively affected a vast number of Shelby County restaurants and bars. Current tax rates of 9.25% on food and beer as well as 24.25% on all wine and spirits, in addition to rising commodity prices and wage rate hikes have challenged many operators to cut margins in order to maintain customer patronage, this before the detrimental effects of the proposed 2% tax. This additional tax will do nothing but further damage the second largest employer in Shelby County, behind government, as well as a major revenue producing industry for the County.
County officials have attempted to represent the economic impact of this tax to affect only the customer, but this is absolutely not the case. In addition to the immediate impact to low and fixed income constituents, secondary effects will occur as portions of the dining market dwindle and are forced to return to unprepared foods. Restaurants, particularly independently owned, will be forced to cut jobs to reconcile the loss of revenue adding to unemployment rolls thus shifting additional burden back to the County and its taxpayers. Continued downturn effects will then ripple through our suppliers, their employees and on to manufacturing and distribution centers. County tax revenues will benefit more by receipts of sales tax monies from a thriving industry than a penalty tax to an already depressed industry. The math is pretty simple. The County receives 2.25% of the 9.25% sales tax on current food and beverage sales in addition to some portion of the remaining 7% sales tax. By removing the $28M from the local economy, not only is there, at a bare minimum, a .25% loss in direct tax revenue, but additional losses will be created by shifting purchases from our $1.4 billion industry, taxed at 9.25%, to unprepared foods taxed at a rate reduced this year to 5.5%. In attempting to create revenue for the County, this proposal does nothing of the sort, but rather drives down County revenues and discourages economic growth.
Also, the notion that this is a luxury tax, inferring that dining out is a luxury is a complete fallacy. In today’s world, luxury is a home-cooked, sit-down meal with family. The foodservice industry has continued to respond to the needs of our community by providing quick-serve and take-out options for patrons to accommodate their lifestyles. Rising commodity prices, due to external economic factors, continue to push people to opt for the convenience of prepared foods as a value decision regarding, not only cost, but time. This is evidenced by the explosion in our community and nationwide in the home meal replacement sector of the food service industry. Today’s demanding work environments place a premium on workers time more than ever, thus furthering the need for prepared food services. To add the burden of additional tax, thus driving taxpayers away from these outlets not only detracts from the industry itself, but negatively affects the quality of life of our County’s voters.
We do, however, agree with Mayor Wharton that the only way to resolve our County budget issues is to “grow our way out” of them. This being the case, we believe that the County should seek other measures of economic incentives to produce revenue rather than tax and spend legislation that will continue to drive our economy down along with County tax revenues. Mayor Wharton likened this proposal to a tax on construction, citing the benefits that the County “gives back” to that industry in the form of schools, roads, and other infrastructure that thereby benefit that specific industry. There are no such benefits to the food and beverage industry in this proposed legislation.
In short, we believe that not only is this an ill-advised tax, with a significant negative impact to our community and economy, but that this is not the direction we expect our elected officials to take. In order to demonstrate the broad opposition to this legislation, we will be submitting signed petitions from, not only our membership, but also the thousands of County voters who patronize our establishments. The Memphis Restaurant Association sincerely urges your opposition to this measure and we look forward to continued input toward the growth of our County. Thank you for your time and consideration.
Memphis Restaurant Association Board of Directors 2008
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