When dining out in certain cities and states across the U.S., customers are asked to pay not one, but two types of tax: A common sales tax and an additional meals tax. Lately, the latter has come under fire in certain cities as local governments are attempting to raise the meals tax to help cover budget deficiencies. So what exactly is meals tax and how does it affect your bottom line at a restaurant? Here's a quick primer below:
What is meals tax?
Taxes incurred in addition to a state's sales tax on the purchase of prepared foods that are eaten in a restaurant or taken "to go" for consumption at a later time.
Is the tax found everywhere?
Meals taxes are typically decided by city governments, but can sometimes be "imposed at the state level." However, the tax is not incredibly common: According to a survey of the 50 U.S. cities with the highest population, only 15 require customers pay meals tax at restaurants.
How much is a typical meals tax?
Meals taxes tend to range from anywhere between .05 percent to as high as 5.5 percent. Cities like Miami, Virginia Beach, Milwaukee, Denver, Boston, and Washington, DC charge a tax. Diners in Minneapolis must pay a 3 percent meals tax in addition to a 7.775 percent sales tax for a grand total of 10.775 percent on a meal, making it one of the highest rates in the nation. Chicago also has a high combined tax of 10.75 percent (9.5% in sales, 1.25% in meals), as does Seattle which has a combined tax of 10 percent (9.5% sales, .5% in meals).
Why do governments impose it?
To raise funds for the city. Governments sometimes justify meals tax as a "luxury tax" that is meant to target those with higher incomes. Additionally, governments believe "it's a way to capture revenue" from tourists and visitors who "use and enjoy many of the amenities provided by the community" but do not have to pay real estate and property taxes like residents.
Why are people against it?
Many argue that meals tax is unfair to those with low-incomes because it affects a wide range of takeout options, not just places that cater to high-income individuals. Others argue that it is simply a tax on "individuals with less flexible schedules or who do not like to cook" regardless of their income levels.