Come July 1 of this year, Town of Herndon residents and visitors to the town will pay an increased meals tax of three-and-three-quarters percent. That’s on top of the 6 percent state sales tax.
Residents in neighboring Fairfax and Loudoun counties voted down referendums for meals taxes when they appeared on local ballots.
At the April 23 Herndon Town Council Public Session, in a vote of 5-2, the Herndon Town Council approved Ordinance 19-O-10, as presented to amend Chapter 30, Section 30-401, to increase the meals tax percentage rate to three and three-quarters percent from two and one-half percent, effective July 1, 2019. Councilmembers del Aguila, Dhakal, Friedrichs, Olem, and Mayor Merkel voted Yes. Councilmembers Baker and McKenna voted No. According to the town, revenue generated by the tax would fund ongoing capital improvements, Herndon Police Department operations, a pedestrian walkways project, an assistant town attorney position and restoration of Parks & Recreation programs. "Raising a tax rate is never an easy decision,” said Merkel.
OPPONENTS of the meals tax increase included John Boylan, President and CEO of the Dulles Regional Chamber of Commerce; its members are in the Town of Herndon and surrounding areas and Kristen Murphy, General Manager of the Washington Dulles Airport Marriott Suites Hotel in the Town of Herndon. During the public comments portion of the public hearing, they and others argued the tax unfairly singled out the food, beverage and hotel industries in the town as a revenue source, and even at the current rate of 2.5 percent, it negatively affected town businesses compared to similar businesses outside the town where there was no meals tax. “We need to think about how this affects businesses…The restaurants are the places we want to support," said Boylan. “By being located in the Town of Herndon, I am in a significant disadvantage against other large hotels in the area,” said Murphy. “My customers already have to pay an additional 6.5 percent in taxes for occupancy tax and meals tax, which currently exists.”
According to town records, in 2011, the council increased the meals tax from 1.5 to 2.5 percent. At that time, the town told restaurateurs partial funds generated by the increase in the meals tax would be used to promote the town’s restaurants and dineONHerndon campaign. “There was no increase in my business, as a result,” said Murphy. “On this occasion, you are saying it is being used for ongoing capital improvements, which will certainly not directly increase my business either,” she said.
By approving the ordinance, the town would not need to raise additional revenue, source funding elsewhere or reduce proposed expenditures to support certain suggested items on the FY2020 Budget. Dave Richardson of the Town of Herndon said, “Town residents are still paying some of it…I ask that you please look harder at this."
Merkel explained funding through the meals tax increase would offset revenue dependence on the “volatile” Business, Professional and Occupational License (BPOL) tax. Merkel recounted a day this spring, during the budget season when Town Manager Bill Ashton said the town was "about a million dollars in the hole for BPOL. And this traffic project was going to be two million dollars more than they thought. That was a really terrible day," Merkel said.
Ashton said in a statement that the reasons why BPOL fluctuates, in addition to businesses coming into the town or leaving, is that the way the tax is structured under the law creates different assessment levels based on how the business activity is categorized. “A shift in the business category may affect the BPOL tax receipts. Also, when a business moves to Herndon, they are required to estimate and pay BPOL against their projected first two years of gross receipts. After two years, their gross receipts actuals are compared against the estimate, and their payment is adjusted accordingly,” Ashton said. If the business can prove they miscalculated their gross receipts or were paying in the wrong category, Ashton said that they were entitled to a rebate, which the town had to pay.
SUPPORTERS for the meals tax increase argued the meals tax increase would give the town a new and reliable source of revenue and reduce its dependence on the unpredictable BPOL rate. Also, as a revenue stream, the meals tax would not rest solely on residents as an increase in personal property taxes would. Businesses and visitors to the town benefitted from town services such as its police force, roads, water, and sewer and would support some of the weight of additional funding for town projects and needs. “You do benefit by the sewer, the water, everything in this town like everybody else does,” said Councilmember Signe Friedrichs.
Councilmember Pradip Dhakal added: “We also understand our citizens deserve a better quality of life, better infrastructures and we must move forward to better position ourselves. …Another thing is we looked at many other options like real estate taxes, meals taxes, cutting expenses or increasing the revenues and what we found and agreed is this impacts our taxpayers’ money less because Herndon is 44 percent business.”
The third paragraph of this story was updated May 8, 2019 to correct the voting record.