Meals Taxes in Major U.S. Cities

March 6, 2012

Taxes on ready-to-go meals are a complicated component of many states' and municipalities' tax codes.  The meal tax, which essentially acts as an up-charge on the standard sales tax, increases the cost of eating out in restaurants and also captures revenue from takeout food locations.  On the local level, however, the imposition of a meal tax is highly variable, say Joseph Henchman, Alex Raut and Kevin Duncan of the Tax Foundation.

  • States generally manage taxation of groceries ("non-prepared food"), which does not constitute a meal tax -- these foods are completely exempt from state sales tax in 30 states and the District of Columbia and partly exempt in a further eight states.
  • Thirty-five of the 50 largest cities in the United States do not charge a higher tax on meals than on other goods.
  • Minneapolis, Minnesota, has the highest combined sales-meal tax with a rate of 10.775 percent.
  • Combined rates are also high in Chicago, Illinois (10.75 percent), Virginia Beach, Virginia (10.5 percent), Seattle, Washington (10 percent), and Washington, D.C. (10 percent).
  • Virginia Beach, Virginia, is the home of the highest meal tax alone -- while the combined state and local sales tax comes to 5 percent, the meal tax raises this rate by 110 percent to 10.5 percent.

The justifications for meal taxes vary.  Some advocates argue that by taxing restaurant-goers, the tax structure essentially hits those with disposable income.  However, others counter that the tax is applied to all pre-prepared food and that the more accurate way to characterize its targets are those without the time to prepare a meal themselves, rich and poor.

Others justify the tax on the grounds that it does not affect local citizens, but instead targets tourists, much like increased tax rates on hotels and rental cars.  However, this play to the status quo does not validate the higher taxation of tourists.  Given that they are in the area only briefly, tourists use relatively few government resources and therefore should not be required to pay a disproportionate amount of government taxes.

Source: Joseph Henchman, Alex Raut and Kevin Duncan, "Meals Taxes in Major U.S. Cities," Tax Foundation, March 1, 2012.

For text:

http://www.taxfoundation.org/news/show/28018.html

 

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