Talking Points

1. The Restaurant & Hospitality Association of Indiana opposes the provision in Hometown Matters that would allow local government to raise food and beverage taxes because our members know from experience that this tax will be paid by both diners and the restaurant owners.

Where it may seem to be a fair tax because all diners pay it- it is not fair when only one industry is singled out to bear the cost of additional local spending.

National studies and recent experience in Indiana show that diners are not the only ones paying a food and beverage tax. The tax comes out of the diner’s budget but at the expense of the restaurant industry and its employees. As diners see their bill increasing- they have many choices and opportunities to keep the bill from rising- they may even choose to see it decline. They can choose less expensive menu items, fewer menu items, or choose a less expensive dining experience. Consumers are extremely cost conscious with their household budget. The recent increase in the price of gasoline showed a decline in restaurant industry revenue, while consumption of gasoline was not as effected. There is no doubt that a food and beverage tax will harm the restaurant industry in Indiana.

2. From an economic point of view it does not make sense to harm the restaurant industry in Indiana. Restaurants are important to the quality of life in a community; they provide opportunities for socialization, entertainment, sustenance and many community jobs. Our hometown communities are proud of their restaurants and glad that they have them.

• It is not good to tax (harm) an industry that yields benefits to the community. Every $1.00 spent in restaurants generates an additional $1.19 in sales for other industries in the state. Every dollar not spent at a restaurant will harm other businesses too.

• It is not good to tax (harm) an industry that is so labor intensive because it will effect employment. For each additional one million dollars spent in eating and drinking establishments, Indiana restaurants generate an additional 45.6 jobs in the state. Clearly the opposite is true, for each $1 million dollars the diners shave off their restaurant bill, Indiana will loose 45.6 jobs.

• It is not good to tax (harm) an industry that has an extremely low profit margin. Typically restaurants operate with a 5% profit margin. If restaurants could raise their prices 1% without losing customers- they would have done so. Operating on such slim profit margins, restaurants are vulnerable to losses from relatively small increases in costs or decreases in revenue. This is a major reason so many restaurants have a short life.

• It is not good to tax (harm) an industry that has a very high elasticity of demand. A small increase in the price of a meal can cause a diner to spend much less- by choosing less expensive items or a less expensive restaurant.

3. Food & Beverage taxes will not yield the desired amounts of money for any real property tax relief. Raising this tax will only be a temporary fix to revenue problems but it will become a permanent tax on an industry that can least afford it and paid for in many cases by people that can least afford it.

4. Food & Beverage taxes are extremely regressive. Most of the counties do not have a food and beverage tax have lower average income levels and more “working poor” who typically need to dine out or carry out after work. Every dollar you take from customers is a dollar that customers no longer have to spend on food.

5. 25% of Indiana citizens pay rent and will not get any property tax relief. If a restaurant tax is used for property tax relief, it could be called a tax on Peter to pay Paul.

Misguided Assumptions
-It is not true that only “tourists” would pay the tax – it would mostly be paid by local residents.
-It is not true that only those who can afford it would dine out and pay a food and beverage tax.
-A food and beverage tax is not just pennies.