A not so appetizing tax plan

As news of a proposed 4 percent tax on restaurant, bar and catering bills spread Tuesday, Omaha restaurant owners and industry leaders voiced concern, surprise and a sense of déjà vu.

Mayor Jim Suttle proposed the new tax on Tuesday as part of his 2011 city budget. The mayor also proposed increases in the wheel tax and the property tax rate. Together, the three would generate a total of $44 million in new revenue.

Suttle said the city needs new sources of revenue to climb out of a $33.5 million budget shortfall projected for next year.

The dining tax proposal marked the third time in four years that the city has entertained a tax on entertainment — but it's the first time that the percentage has been so high and that food and drink tabs are the sole targets. Previous entertainment tax proposals also would have applied to movie, concert and sports tickets.

“Unflippingbelievable,” said Omaha Restaurant Association executive director Jennie Warren when she learned of the proposal Tuesday afternoon. She said she was preparing a mailer that would encourage all association members to contact their City Council representatives.

“We've been opposed to this from the very beginning,” said Nicole Jesse, co-owner of La Casa Pizzaria and past president of the association.

“We feel it targets one particular industry unfairly. We feel it's a regressive tax. And we don't think it's going to do what he (Suttle) thinks it will do. We think it's going to deter people from spending.”

Council Bluffs restaurant owners might benefit if Omaha adopts the restaurant tax.

“That's a killer tax,” said Steve Tisher, owner of Tish's restaurant in Council Bluffs. “It could drive business across the river.”

If the tax is adopted, Omaha diners will be paying 11 percent on their restaurant bills, when figuring in the combined 7 percent state and local sales taxes they already pay.

Tisher said that because his restaurant on South 35th Street is relatively close to Omaha, his traffic could increase.

“A lot of our clientele is Omaha people to begin with,” Tischer said. “I would say it would drive business this way.”

Frank Hoover, owner of the 1892 German Bier Haus restaurant in Council Bluffs, said people may react to the tax by eating at home more often or by dining outside Omaha.

Suttle has said the city needs to find new revenue sources to help shore up the police and fire pension funds and help maintain essential city services.

His budget estimates the 4 percent tax would add $23.5 million to city coffers, $2.3 million of which would go to the Omaha Convention and Visitors Bureau to attract more diners and tourists to Omaha.

Visitors to Omaha spend an average of $308.6 million a year on food and beverages at restaurants and bars, according to the Convention and Visitors Bureau.

It's good that there's money for tourism, “but it still doesn't make it right,” Warren said. “He still shouldn't be picking on one industry. More than restaurants benefit from tourism.”

Patrick Brusnahan of Omaha said a 4 percent tax wouldn't keep him from frequenting Omaha bars and restaurants or make him any more curious about eateries in other jurisdictions.

“That's a categorical no,” he said. “It wouldn't make a difference. I would still go to places I like to eat. To me, it's discretionary spending.”

But Brusnahan, who worked in restaurants before becoming an accountant, said he also sympathizes with restaurant owners who could face a new “bookkeeping nightmare” collecting and reporting another form of sales tax.

Warren and other members said they fear that the tax would deter Omaha diners who are already drinking and dining out less often — and that it would make it harder for restaurants to maintain already narrow profit margins in a climate of economic uncertainty.

In 2007, Omaha bar and restaurant owners formed an opposition group called Strike 2 to oppose a 2 percent restaurant and bar tax that then-Mayor Mike Fahey proposed to help fund the new downtown baseball stadium. The proposal died.

And last year, the Omaha City Council heard restaurants' pleas when it struck down the 2 percent tax that Suttle proposed on restaurant meals, movies and tickets to most concerts and sporting events.

Jesse, the La Casa co-owner, said association members knew the topic would come up again. They and representatives of local hotels met with the mayor this spring to discuss budget issues and tax proposals.

“Adding another tax is not going to make people want to spend more money,” Jesse said. “Maybe our customers are going to order less to make their bills smaller. If that happens, the sales tax revenue drops, too.”

Jim Trebbien, dean of culinary arts at Metropolitan Community College and author of a textbook on culinary cost management, said specialty taxes do figure into the cost equation for restaurant, bar and catering companies and their investors.

He said 4 percent, on top of the combined 7 percent city and state sales taxes, seems “big city” high and might steer some companies away from Omaha.

“I'm amazed it's that high,” he said. “This will be very poorly received by restaurants.”

Nonetheless, Omaha is not alone in looking to dining taxes to fund city needs.

Two years ago, Grand Island began imposing a 1.5-cent tax on restaurant food and beverages to help pay to move the Nebraska State Fair from Lincoln to Grand Island.

The Lincoln City Council last week approved a measure to add a 2 percent tax to bar and restaurant tabs. Revenue from the tax, which will take effect Jan. 1, would help pay for a new $340 million arena in Lincoln's Haymarket district.

Seattle has a 0.5 percent tax on restaurant and beverage bills to help pay off its Safeco Field. Kansas City, Mo., has a 2 percent tax on prepared food, beverages and tickets for tourism.

There's no expiration provision in the Omaha restaurant tax proposal. That means if it were approved, it would take a City Council vote to repeal it.

World-Herald staff writer Maggie O'Brien contributed to this report.

Contact the writer:

444-1069, nichole.aksamit@owh.com

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