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Standing Alone

While other communities partake of meals taxes, Herndon declines, so far.

As the Herndon Town Council once again wrestles with the idea of a meals tax, other nearby communities in Northern Virginia seem happy to have that revenue source already on the books.

With discussion of a meals tax in Herndon heating up, many local restaurant owners have come out against the proposal. Arguing that it is unfair to single out restaurants, several owners say that such a tax would cripple their already struggling industry and the 88 restaurants in Herndon.

If the controversial proposal is approved, Herndon would join a long list of municipalities who already have similar sources of revenue. Vienna has one. So does Leesburg, Falls Church, Fairfax City, Manassas, Alexandria, Arlington, Warrenton, to name a few. Bucking the tide, Herndon has not joined forces with the other 31 towns in Virginia, said to Mary Tuohy, the town's finance director. In fact, all 40 incorporated cities in the Commonwealth have such a tax and 30 counties do, as well, Tuohy said at the Feb. 25 Town Council meeting. But not Herndon.

<b>IT WAS AT LAST WEEK'S </b>meeting that several local restaurateurs voiced their opposition to the idea of a meals tax. Owners of Herndon landmarks, the Tortilla Factory and Jimmy's Old Town Tavern, among others, pleaded with a mostly sympathetic council to reject a meals tax.

Chuck Curcio, owner of the Tortilla Factory, summed up the feeling of the owners. "It is an unfair tax and an unneeded tax," he said. "We can't afford the loss of one restaurant in our downtown."

While owners publicly warned that a meals tax could force some restaurants to close and others to move out of Herndon, several officials in communities that have a meals tax, disagreed.

In 1990 in the Town of Vienna, there were 30 restaurants. Ten years later that number more than doubled. Thirteen years ago, those same 30 restaurants grossed slightly more than $19 million. A decade later, Vienna's 62 restaurants earned more than twice that amount with $47.7 million in revenue, Vienna Town Councilman Al Boudreau said.

"It hasn't hurt the restaurant business, one bit," said Boudreau.

Vienna has a meals tax of 4 percent which brought in $1.6 million last year, which amounted to 7.6 percent of their total budget, according to a study by the Town of Herndon.

"The results here in Vienna indicate that it hasn't hurt restaurants," Boudreau said. "Really, who's going into a McDonalds and worrying about 8 cents on a $2 meal? And at the other end of the spectrum, nobody is going to worry about an extra four bucks on a $100 bill."

With restaurants in Herndon and Vienna, the owner of the Amphora Diner, thinks his customers do care about a few nickels here, and a few dimes there. "Day in and day out, our customers know what they order and they know how much it costs," George Cholakis said. "They see the impact and we hear about it."

The Vienna restaurant just celebrated its 25th year in town, so Cholakis has seen the tax from both sides. The introduction of a meals tax makes it very difficult to adjust for cost increases, Cholakis said. "It limits our ability to increase salaries and to account for utilities increases," he said. "With an additional tax on the bill, it makes it difficult to pass the increased cost of doing business on to the customers. To a certain degree, a meals tax, no matter what people say, does end up being a subsidy from the restaurants."

<b>BOUDREAU SAID THAT</b> because municipalities are so limited in finding revenue sources, taxes like the meals tax are attractive, especially since much of the burden falls on nonresidents. "There are just not that many alternatives," he said.

The Herndon study also liked the "user pays" principal inherent in a meals tax. "Adoption of a meals tax would further the Town Council's long-term fiscal goal of diversifying the town's revenue stream and reducing reliance on real estate taxes as the primary revenue source," Tuohy said. Tuohy also estimated that anywhere from 44 to 75 percent of taxes collected would come from non-Herndon residents.

Marie Kisner, a Vienna town government spokesperson, agreed. "We have doubled the number of restaurants without any adverse affects," Kisner said. "And we do get a lot of traffic from Tysons Corner."

While originally Vienna's meals tax was 3 percent, as of January 1, 2002, the tax was raised to 4 percent. The increase is earmarked for specific improvements to a "revitalized" downtown Vienna, including the purchase of land for a new park. It is estimated to return to the 3 percent figure by 2008, Kisner said. "We did get the same sort of opposition when we raised the tax," she said, "but the money has got to come from somewhere. With the meals tax, at least, the burden does not land solely on town taxpayers."

In neighboring Fairfax, city officials seemed to echo Boudreau's sentiments. First established in 1985, the City of Fairfax's meals tax has been a steady revenue source for a city with 130 restaurants and only about 22,000 residents, said Page Johnson, the commissioner of revenue. "Most of the customers in our downtown restaurants are county residents," he said. "It really doesn't impact city residents and I would expect the same thing over in Herndon."

As the city's tax collector, Johnson is accustomed to hearing the complaints of tax-weary residents. "There are people who aren't happy with any kind of tax," he said, "but, if you have to have taxation, it is better to have those taxes that you don't notice like a sales or meals tax. It is the taxes like personal property and real estate taxes — those that require residents to write a big check — that really get to people."

Herndon Vice Mayor Carol Bruce isn't convinced. While she doubts that few, if any, restaurants would leave Herndon as a result of the proposed meals tax, she doesn't think that is a reason to add to the tax burden of her constituents and her neighbors. "Just because we can tax, doesn't mean we should," she said several times. "Besides I don't think we are talking about a whole lot of money either way."

For the vice mayor, this is not the first time she has seen this issue percolate in front of the council. On two prior occasions, she has voted against the tax and she is prepared to do so again when the issue goes in front of the current council later this month. "It is a philosophical thing for me and yes, it is probably symbolic, but still, I don't like the message that it sends to our restaurant owners," Bruce said.

Jim Deuel, chairman of the Herndon-Dulles Chamber of Commerce, is waiting to meet with some of his members, the local restaurant owners, before the chamber takes a stand on the issue.

"Perhaps there is some misconception that that industry is doing really well these days. They are operating on a very narrow margin," Deuel said. "This may not be the right time, but it is something to explore."

<b>STEPHEN OWEN</b>, Herndon's new town manager, is more than happy to let the council determine whether or not Herndon becomes the last town in the Commonwealth to institute a meals tax. With revenue from commercial property taxes decreasing and personal property taxes increasing, a meals tax would be one way to expand and diversify the tax base in Herndon, Owen said. "But I will gladly defer to the Town Council and let them determine if it should be a priority."

Owen was assistant county administrator in Frederick County when a county referendum on a proposed meals tax was voted down by the county's voters. Despite the vote, the county Board of Supervisors then sought special permission from the General Assembly to launch the tax. Richmond granted the request. "I wouldn't want to go through that again," Owen said. "However, the funny thing is that, to the best of my recollection, all the members were re-elected during the next election. Other issues were on the voters' radar, I guess."

Owen said he doubted the apocalyptic claims of the restaurant owners that a tax would devastate their businesses. "Of course, I can't imagine that the tax would actually drive restaurants out of business or out of Herndon," Owen said. "I know in my 45 years of eating out in restaurants, I have never made a meal choice based on if the restaurant had a tax or not, never in my life."

Del. Tom Rust (R-86) is a veteran of Herndon's previous meals tax debates. Now Rust represents communities with a tax, Leesburg, and without, Herndon. The former Herndon mayor remembers the battles well and, like Owen, he is happy to let the current council settle this issue. "I know the restaurant community feels very strongly that this tax is very discriminatory against them and they always say that restaurants will be shut down or forced to move," Rust said. "But, I will say that this has not been the case in Leesburg or Vienna."

Like Rust before him, Herndon Mayor Richard Thoesen might find himself in the minority. Thoesen supports a meals tax, though he said he thinks it should be less than 3.5 percent and it must be tied to corresponding relief for the town's property owners.

<b>FROM ARLINGTON TO FAIRFAX </b>to Leesburg, diverse municipalities around Northern Virginia continue to generate much needed revenue from their local eating establishments. David Hodgkins, Fairfax's finance director, strongly supports his city's meals tax. In fact, Hodgkins would like to see it raised from its current rate of 2 percent to 4 percent. "To stay in line with our surrounding communities, I want to raise the meals tax," the director said. "It's a good tax because it is paid, in part, by people outside of the city who are enjoying our services and our restaurants and then leaving."

Paul York has been Leesburg's director of finance since 1984. Two years later, Leesburg passed its first meals tax. In 2003, York and the tax, which brings in about $2 million annually, remain. "Of course there was some opposition, initially, from the restaurateurs," York recalled. "We have twice as many restaurants today as we did in 1986. This has never been an issue in Leesburg. What some people fail to understand is that this is not a tax on restaurants, it is a tax on the patrons."

York thinks Leesburg taxpayers are more concerned with quality of their food and the restaurant's service, rather than a "25 cent tax on a cheeseburger."

York said his town spends a significant amount of money and effort trying to attract tourist dollars to downtown Leesburg. One way to recover the cost of attracting visitors is through the town's meals tax. "Tourists are reaping the benefits of our revitalized downtown and they are using our facilities," York said. "Like Herndon, Leesburg has a large transient community and most people eating lunch don't actually live her."

While accounting for only 2.9 percent of his town's total annual budget, the meals tax is an important source of revenue, York said. "Without that $2 million, we'd have to make it up somewhere else. To me, it makes sense to try and capture that revenue."

The City of Alexandria has had a similar tax on the books since 1976, said to Dan Neckel, director of finance. Since 1984, the tax has remained steady at 3 percent. In fiscal year 2000, the meals tax brought $7.9 million into the city's general fund. Last year, that figure increased to $8.5 million. "It's been a reasonably successful tax for us," Neckel said. "If you can think of another kind of tax, I am listening. We always need new money sources."