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How Fort Smith tried to pass an alcohol tax during COVID-19

Editor’s Note: This story has been updated to accurately reflect the types of businesses that have been closed for 74 days in Arkansas due to COVID-19.

Bar and restaurant owners in Fort Smith — who say they are already suffering from the COVID-19 pandemic — are worried about a 5% hike in the city’s liquor tax.

Scheduled to take effect Dec. 1, 2021 with a study session to reconsider in October, the capped alcohol sales tax would hike adult beverage taxes in Fort Smith up to 19.75% for the beer, 23.75% for wine and 33.75% for alcohol when purchased from a bar or restaurant. While presented to the Fort Smith board of directors at the Dec. 15 meeting as a tax “on the gross proceeds or gross receipts derived by such private club,” City Administrator Carl Geffken said Wednesday that the tax would apply to all bars and restaurants. in Fort Smith that serve alcohol.

It may have gone into effect Jan. 1 if Downtown 64.6 Director Talicia Richardson hadn’t spoken before the vote on the tax.

“My first thought is, why kick the service industry when it’s broken?” 21 West End owner Kevin Dorey said, noting the hit the industry has taken during the pandemic.

The tax as presented in the 2021 budget was expected to return $500,000 to the city’s general fund, which was expected to help reduce the fund’s deficit in 2021 to $1.1 million. At-Large City Manager Neal Martin argued that the city is in a good financial position to manage without the tax – it currently has a $3.5 million surplus in the general fund and an appropriation. over $3 million under the CARES Act, both reported by Geffken. would help pay a projected shortfall from the needs claims.

While restaurant owners in Fort Smith said they understood the purpose of the taxes, they were perplexed by the city’s willingness to tax an already heavily taxed product more. Dorey expressed frustration that if Richardson hadn’t spoken before the board voted on the tax, it could have gone into effect without much public information in early January — likely, before the restrictions COVID-19 be lifted for restaurants and bars in Arkansas.

Whenever it goes into effect, the tax will follow a pandemic that in Arkansas caused bars to close for 74 days. Service workers, including those in these establishments, were among the hardest hit at the start of the pandemic and had to manage unemployment, reduced hours and uncertainty about when they could return to work.

“A lot of restaurants are struggling. We have to adjust our costs to our customers and we pass everything on to our customers,” said Taliano’s Italian restaurant owner Joe Caldarera.

How and why it was adopted

At the December 15 meeting, Richardson spoke out against the order as written and requested that the tax start date be moved to December 1. 4, before Ward 2 Director Andre Good amended the motion to reflect Richardson’s request.

Good’s motion passed 5-2, with Martin and Ward 4 manager George Catsavis voting against.

Martin, who also voted against the first motion, said on social media on Friday that “there are pressures” on the general fund, including an unfunded liability with the former police and fire department pension. the city. He also said the city has been under pressure to fund posts and equipment to run their services more efficiently.

Deputy City Administrator Jeff Dingman said the liquor tax has been discussed “periodically” in city government as a way to maximize city revenue and pay for expenses. Dingman said the city is currently limited in its ability to raise revenue for operating funds.

“I don’t know whose idea it was originally, but it was always one of those things we could do in terms of increasing revenue,” Dingman said.

“Nobody likes to pay extra taxes”

The liquor tax was included in the 2021 budget, as most budget requests are tentative until voted on by council. But the city has not reached out to the businesses that would be hit hardest by the tax before it goes to a vote.

Dingman said the decision not to contact bars and restaurants was because the city had “a good idea of ​​what the answer might be.”

“Nobody likes paying extra taxes, so it’s just a guess what the answers will be,” he said.

He also noted Richardson’s response to the proposed order, which he said “was sound feedback.”

The city’s bars and restaurants are suffering the brunt of COVID-19 restrictions that have seen their annual profits plummet to fractions of what they were in 2019. As well as being forced to close in March, bars and restaurants are currently allowed to accommodate customers at 66% capacity. It was even less before.

Old Town and Fifth Street Cafe owner Cynthia Moore said she lost 100% of her business in Old Town and 76% of her business on Fifth Street as those establishments were more heavily restricted in the spring. Dorey, who had to close his Italian restaurant Bella Bacio in the spring due to a loss of revenue, said he would only do about 38% of the business he did in 2019 at 21 West End. And business at Taliano is 40-50% lower than usual this year, the owner revealed.

Caldarera said he thought Geffken was “a good man” who was doing a good job running the city. But he still questions the tax on alcohol.

“We were facing shortages of the product we were serving. Yet to this day my alcohol is still spoiled due to supply and demand,” Caldarerra said.

“I just feel defeated every time I turn around,” Moore said, referring to tax restrictions and COVID-19.

Support source

All alcoholic beverages sold in Fort Smith are taxed at 5% in addition to Fort Smith’s current sales tax rate of 9.75%. But all three types of drinks are taxed differently – alcohol, for example, has two Arkansas mixed drink taxes that jack cocktails up to 14% regardless of where they are. served in the state.

If enacted, the tax would closely align Fort Smith’s liquor tax with that of cities like Hot Springs (33.5%) and Little Rock (33%). A portion of the food and beverage taxes prepared by these cities goes to fund their convention centers.

Fort Smith has in the past considered a prepared food and beverage tax to fund its convention center. This idea might be shelved for a while, as the city pays OVG Facilities to manage and upgrade the Fort Smith Convention Center.

Dorey said he would understand better if the taxes in question were raised for a purpose like this.

“I think if a new tax is to be raised, it should be used to support the industry that creates it,” Dorey said, noting that Fort Smith also lacks the tourist economy of Hot Springs.

Caldarera said he was “for” the police, fire department and any city utilities that the general fund could pay for. But he was still puzzled as to why the city government had chosen alcohol as a possible source of funding for these services.

He was particularly concerned about how this expense would accrue to his customers.

“You walk through the door, and in your head, ‘This visit cost us ‘x’ dollars.’ It’s with your food, your drink, your sales tax, your tip. In your mind, you don’t break it down in your head,” Caldarera said. “You go out and you know you just lost $100, or $150, or $50, or whatever. It was the cost whether or not you enjoyed the experience.

Until next December

City officials in October will revisit the tax at a study session before it is scheduled for December 2021. Geffken after the meeting noted that city managers at the study session could discuss options to repeal their vote from December or move the effective date to a later time.

Following that line of thinking, Dingman said the study session will most likely be a snapshot of how the city has fared economically in 2021. Questions that might arise at that time are how many COVID-19 has declined and whether the virus vaccine has helped the private business sector, he said.

“It will only be a check on the state of the economy’s wealth and the pandemic at that time,” Dingman said. “If this continues and it still has a negative effect on a restaurant’s ability to open at 100% capacity and things like that, then I guess those are the things the board would consider at that time. .”

But Fort Smith bar and restaurant owners are looking to take more immediate action to fight the tax. Moore said she hopes this will be brought up at the Downtown Bar and Restaurant Association’s next meeting in January so it can be discussed.

Dorey said he sees the tax becoming a common topic in the daily life of Fort Smith’s food and beverage industry.

“You’re going to see the restaurant industry as a whole and probably communicate to every person that walks through their door what’s going on, just because it’s a very high tax rate,” he said.

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