ROANOKE, Va. – Restaurant owners across Roanoke are keeping a close eye on their businesses following a 1% increase in the meals tax that took effect on July 1, pushing the total rate to 6.5%.
While it’s only been three weeks, some restaurant owners have fewer customers.
Scrambled’s Owner, Gary Fleming, said he’s noticed a 10% decrease in customer traffic since the tax increase.
“Our dining room is empty. Our patio’s got some folks on it, but our dining room is empty now,” said Fleming.
Fleming said it’s hard to attribute the decline in customers to the meals tax, though.
“It’s hard to say,” said Fleming. “Increasing the meals tax does not encourage people to come downtown to eat, especially in a small restaurant like ours, but you know, there are other things involved as well. I mean, people still talk about parking, that that’s a real issue.”
10 News asked about how much customers can expect to pay extra per meal.
Fleming said it depends, but for a $20 bill, they could be paying 50 cents.
“So, it’s not noticeable, I don’t guess, for most folks. But they’re aware of it. The ones that know about it are aware of it,” said Fleming.
Jason Martin, who owns Martin’s Downtown, Sidecar Restaurant, and Jaybird Tavern, said it’s too early to determine the tax increase’s full impact.
“I just think over time people are going to see that their bills have gone up, and if they take a look back at what they spend per month, I think they’re going to say, ‘Oh, wow, I am spending more a little bit here and there.’ And I’m afraid it’ll be the straw that breaks the camel’s back,” said Martin.
To prepare for the tax hike, Martin had to adjust their pricing structure, particularly for tax-inclusive items at the bar.
“It was more of a profit decrease,” Martin explained.
In an email, Martin further explained how they’re experiencing a profit decrease.
“For items that are tax inclusive, such as a beverage that is $8.00 even, and priced this way to keep cash transactions simple and speedy, then the amount that the business actually keeps is .06 less, therefore making us less profitable, especially when compounded thousands of times every week. The amount of revenue on an $8 transaction at the previous tax of 10.8% that the store would bring in was $7.22, and now at the new rate of 11.8%, the amount the store keeps is reduced to $7.16.”
He also said restaurants pay an average of 3% for credit card processing, “and the additional tax being collected results in an additional financial burden and liability to the business,” said Martin.
The Roanoke City Council voted to change the meals tax to one percent, and it took effect July 1. The tax was previously 5.5% and now it’s 6.5%. The increased revenue will help fund overtime pay for city employees and address maintenance backlogs. In addition to the meals tax, there are also two provisions. One would provide a credit for restaurant owners who pay the meals tax on time, and another would end it in two years.
Roanoke’s new 6.5% meals tax rate falls behind Christiansburg, which has a tax rate of 7.5%. However, Roanoke City’s meals tax is higher than Salem City and Botetourt County, both at 6%, and Roanoke County at 4%.
Martin advocates for reinvestment of the new tax revenue into the restaurant community.
“What I would really like to see from city council is some return of that money back into reinvesting back into the restaurants, trying to build some foot traffic,” he said.
He said the bike race recently at Elmwood Park was a great example of things that can be done to help restaurants.
Despite concerns from business owners, some regular patrons remain committed to dining out.
“My wife and I eat at a really cheap restaurant down here in Downtown Roanoke, Ernie’s, so we usually spend about $20 when we could go to McDonald’s or Hardee’s on a Saturday morning and spend $25 together. So, it’s not too much of a big deal,” said Montae Otey.
Another customer said he’ll still be dining out, too.
“We don’t go out every single day. I think if it benefits the city and properties, I think it will make people happier,” said Bob Rimkis.
Beyond the meals tax, restaurant owners identify parking as a significant concern for downtown businesses.
“For us, I think, still the biggest thing, especially during the week, is people are afraid to park. They’re afraid they’re going to get towed. They are afraid they are going to get a ticket, and so they are very reluctant to come downtown,” said Fleming.