Average restaurant customers in Little Rock probably have no idea what a complicated transaction they enter into when they order a burger and a beer — or a Coke or a Jack Daniel’s on the rocks, or, most complicated of all, a burger and a Jack-and-Coke.
Go for the Jack-and-Coke, and you’ll pay no fewer than eight separate taxes on your ticket: State sales tax, county sales tax, city sales tax, city advertising-and-promotions tax (more commonly known as the hamburger tax), two state mixed-drink taxes, city mixed-drink tax and state soft-drink tax. (The soft-drink tax is actually paid by the restaurant when it buys syrup or prepared drinks from wholesalers, but the cost is passed along.)
A group of Little Rock restaurant owners, among the several hundred members of Consolidated Arkansas Restaurant Industries, is agitating for change in one of those taxes — the city A&P tax, which adds 2 percent to every restaurant and hotel bill and funds the Little Rock Convention and Visitors Bureau. The CVB uses the money to market Little Rock as a tourist destination and to operate Robinson Center, the Statehouse Convention Center and, for now anyway, Curran Hall’s visitors center.
The restaurant owners — leaders include Mark Abernathy of Loca Luna and Bene Vita, Scott McGehee of Boulevard Bread, Chris Tanner of Cheers and Jay Hamric of Outback Steakhouse — say the tax unfairly burdens restaurants and their customers, and provides far more money to the Convention Bureau than it needs. Plus, they say, the vast majority of restaurant customers outside of downtown are from Little Rock, but the Convention Bureau’s operations benefit tourists and downtown hotels and restaurants. In a position paper submitted a few weeks ago to Mayor Jim Dailey and the city Board of Directors, which imposes the tax, they argued that the tax should either be lowered for both restaurants and hotels, or shifted so that hotel customers pay a higher percentage than restaurant customers. Little Rock’s hotel tax is one of the lowest in the country, they argue — Texas, for example, has a state hotel tax rate of 6 percent, and cities can add up to 7 percent more — while restaurant taxes (including the mixed drink taxes, which amount to 31.5 percent in Little Rock) are among the highest.
So how do city leaders and Convention Bureau officials and hotel owners feel about that? The bottom line is, it doesn’t really matter. According to a memorandum written by the Convention Bureau’s attorney on Sept. 26, the city legally can’t change or reduce the tax until 2015.
In 1993, the city refinanced a 1986 bond issue that paid for the expansion of the Statehouse Convention Center. Under the terms of the city’s agreement with the bond underwriters, the 1993 bonds are “uncallable,” meaning they can’t be paid off before they mature in 2015. The terms also stated that the entire A&P tax would be pledged as the source of funds to replace the bonds, and so the city can’t change or reduce the tax while any of the bonds are outstanding.
So even though the proceeds from the A&P tax jumped 42 percent from 1999 to 2005 and are up more than 5 percent this year over last year, and the Convention Bureau has far more money in its budget than it needs to make the bond payments, the city — and the city’s restaurant customers — are stuck with the tax.
“From a legal standpoint it’s just a non-starter until 2015,” Convention Bureau head Dan O’Byrne said of the restaurant owners’ effort to change the tax.
In 1999, the 2 percent tax produced about $6.1 million for the CVB budget. By 2005, that was up to $8.7 million.
This year, the CVB is budgeting for collections of $8.6 million — a low number, apparently, given that collections for 2006 are up 5.6 percent over 2005 year-to-date. The 2006 collections were up $408,000 over the budgeted amount by the end of August.
That bothers some restaurant owners, including Abernathy.
“Over the last several years their budget has just ballooned because the prices of dining out have gone up, and there are more restaurants in the market,” Abernathy said. “We don’t think they need that much money.”
Of the $8.6 million 2006 budget, a little over $1 million is earmarked for Robinson Center, the Statehouse Convention Center and Curran Hall, all of which the Convention Bureau operates at a loss. Of the rest, $3.3 million is budgeted for sales and marketing, $1.9 million for finance and administration, $758,781 for the executive office and just under $1 million for facility management. Only $398,131 is budgeted for debt service, with another $780,000 set aside for “future obligations and capital reserves.”
O’Byrne said the ballooning budget has largely paid for increased marketing efforts. The Clinton Library boosted Little Rock into a higher bracket of convention and tourism destinations, he said, and while that means bigger conventions are now considering Little Rock, it also means Little Rock has to compete at a whole new — and more expensive — level.
O’Byrne said about 85 percent of the $408,000 budget overage this year has gone into marketing Little Rock as a tourist and convention destination.
“We didn’t use it to deep-clean the convention center,” he said. “We’re trying to be a good partner with hotels and restaurants.”
About three-quarters of the 2 percent A&P tax revenue comes from restaurant customers; the rest comes from hotels.
“They have a legitimate point,” Dailey said. “On the other hand, I would also say they are in part the beneficiaries of extra convention business and all that comes into the town.”
But the restaurant owners who are protesting the tax disagree. They say they can tell by analyzing credit card receipts that very few of their customers are from outside Central Arkansas. Convention-goers and tourists seem to stay downtown, they said.