Thinking About a Local Option Meals And Rooms Tax

State government is on the path to giving cities and towns the ability to add a local levy to the state's meals and rooms tax, as an offset to reduced state revenue sharing.  If towns want to raise an amount equal to the reduced aid from the state, the local levy will be very different from town to town.

by Dennis Delay and Steve Norton

Meals and rooms receipts in New Hampshire are now taxed at 9%, with about 80% of the tax revenue coming from meals and about 20% coming from rooms, according to the Department of Revenue Administration.  The state collects about $230 million from the meals and rooms tax, on a tax base of about $2.6 billion, estimated by dividing the tax revenue by the tax rate.  About $55 million is shared with municipalities based on a population formula (RSA 78-A).

Counties with high meals and rooms sales, and lower population collect proportionally more in revenue than they get back in revenue sharing.  For example Carroll County, home to the White Mountains  and  other ski country attractions, collects about 7.4% of the meals and room tax revenue, but receives about 3.6% of the meals and rooms revenue sharing (based on 2008 data).  Rockingham County (New Hampshire’s ocean beaches), Belknap (the Lakes Region), and Grafton (Lake Sunapee and skiing), also collect proportionally more than they proportionally receive in meals and rooms revenue sharing.

So how high would the local levy be on the state meals and rooms tax, if it were only to offset a reduction in meals and rooms revenue sharing?  The answer depends on where you live.

For example, let’s assume that the state planned to reduce meals and rooms revenue sharing by 15%, or roughly $8 million.  The table below shows that reduction as a portion of total meals and rooms sales in each county, and presents the local levy meals and rooms tax needed to make up the reduction in revenue sharing.

 

Belknap, Carroll, Grafton and Rockingham counties have high meals and rooms sales per person so the local levy on the state meals and rooms tax would be at or below the state average.  On the other hand Cheshire County would need to increase the local levy on the meals and rooms tax at twice the state average, in order to make up the loss in state revenue sharing.

Unfortunately the data does not exist to perform this analysis at the town level.  While data on meals and rooms revenue sharing is available by town, the county is the smallest level of geography available for meals and rooms sales and tax revenue; meals and room sales data are not available at the town level.

Towns may decide not to avail themselves of the local levy option, and use the property tax to offset the reduction in state revenue sharing.  That choice would probably depend upon the ratio of town meals and rooms sales to overall property value.