There’s no such thing as a duty-free lunch — or at least there shouldn’t be, according to a number of New Hampshire city officials.
Municipal administrators in Granite State took umbrage after Gov. Chris Sununu suggested on Wednesday that New Hampshire lawmakers should suspend the state’s meals and rooms tax this summer, touting it as a way to relieve residents and tourists from the ravages of inflation.
But city officials fear that a suspension of the tax could undermine city budgets.
‘I almost spit my coffee out when I opened my browser and read it this morning,’ said Hannover city manager Julia Griffin, describing her reaction when she learned of the proposal on Thursday. morning. “The timing is just lousy.”
Griffin’s almost spitting aside, Sununu’s comments, made at a business forum hosted by the New Hampshire Institute of Politics in Manchester, indicate he views the proposal as a winner.
“Let’s give everyone a 10% coupon on their summer vacation,” Sununu said, as reported by the union leader. “We are coming to May and June, the start of the tourist season. … What if we put all of this on hold for a few months, because what we find is that it’s really, really expensive?
The New Hampshire Meals and Accommodations Tax, which was reduced to 8.5% from 9% last year, is levied on in-state meals and lodging and paid for by the customer.
For the fiscal year ended June 20, 2021, the state collected a total of $328.9 million — 84% of which came from meals — from the tax and redistributed $68.8 million of that amount to cities and towns.
The Meals and Rooms Tax helps fill gaps in municipal budgets and is an important tool to offset potential property tax increases, Griffin said. New Hampshire, after years of hearing complaints from municipalities that the state was not reimbursing the level of revenue required by law, recently agreed for the current biennium to strengthen the so-called “distribution” to cities.
For Hannover, that will mean an additional $200,000 a year for two years, Griffin said: “It’s not insignificant.”
The amount of reimbursement – or distribution – of Meals and Rooms Tax revenue to individual cities is based on population, not the amount of Meals and Lodging revenue generated by restaurants. premises, hostels or Airbnb rentals. But it can be a big change, especially for small towns.
Hanover received $582,000 in state room and board tax refunds in 2021 and is expected to receive $819,500 in 2022, according to the state treasury.
Lebanon received $712,500 last year and is expected to increase to $1.04 million this year.
Other Upper Valley towns include Claremont, which is expected to receive $970,600 from $670,300 last year, while New London is expected to receive $305,400 this year from $208,300 last year; Sunapee gets $257,400, up from $176,500 previously; and Lyme $127,000, down from $87,500.
Even some restaurant owners aren’t sure how much the 8.5% meal suspension will entice people to spend money at a time when a gallon of gas costs well over $4.
“It feels more like a feel-good thing. A customer will say, ‘I don’t have to pay tax, that’s cool’,” said Nigel Leeming, owner of Hannover pub Murphy’s on the Green. “But I don’t see that as an incentive to come out.”
Leeming noted that, like his customers, the restaurant industry is struggling to keep up with inflation, especially for restaurants in the semi-rural Upper Valley, which are constrained in how much they can raise menu prices. . He recently had to raise the price of the $1 “Murph Burger” from $16 to $17 to keep in line with the 6% to 7% higher cost of beef.
Lebanon’s city manager Shaun Mulholland said that without the higher meal and room tax distribution approved by the Legislative Assembly last year, Lebanese homeowners would consider paying higher property taxes.
“We went from a 2.5% tax rate increase to just a 1% increase here in the city just because of the food and room tax,” he said.
The New Hampshire Municipal Association, which lobbies the state on behalf of municipalities, said if the Legislature goes ahead and approves the tax holiday, it would have to find a way to guarantee reimbursement of that tax. amount to municipalities.
“The increased meal and room distribution serves as tax relief and has been touted as such by heads of state,” NHMA executive director Margaret Byrnes said in an email to members on Thursday. , urging them to contact lawmakers. “A reduction would affect municipal budgets, which would affect taxpayers.”
The question, however, is where the state would find the funds to make up the difference.
Phil Sletten, senior policy analyst at the New Hampshire Fiscal Policy Institute, said the state could dip into its excess cash, which currently totals about $192 million, or its rainy day fund, which has about $258 million.
While either fund could theoretically be tapped, excess cash could be temporary and dependent on future earnings, he noted.
The surplus fund can be used to cover future revenue shortfalls, Sletten explained, and the amount of money flowing into it is a function of tax revenues entering state coffers relative to budget expenditures.
“If you reduce revenue by suspending the meal and room tax, you will obviously reduce the amount of revenue that comes into the state,” he said.
Contact John Lippman at [email protected].
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