HANOVER — There’s no such thing as a tax-free lunch — or at least there shouldn’t be, according to a number of New Hampshire town officials.
Municipal administrators across the Granite State took umbrage after Gov. Chris Sununu suggested Wednesday that New Hampshire lawmakers should suspend the state’s meals and rooms tax this summer, pitching it as a way to give residents and tourists some relief from the ravages of inflation.
But town officials worry that a suspension of the levy could undermine municipal budgets.
“I nearly spit out my coffee when I opened my browser and read it this morning,” said Hanover Town Manager Julia Griffin, describing her reaction when she learned of the proposal on Thursday morning. “The timing on this is just lousy.”
Griffin’s near-spit take aside, Sununu’s comments, made during a business forum hosted by the New Hampshire Institute of Politics in Manchester, indicate he sees the proposal as a winner.
“Let’s give everyone a 10% coupon on their summer vacation,” Sununu said, as reported by the Union Leader. “We’re coming up to May and June, the kickoff of tourism season. … What if we suspended that all together for a couple of months, because what we’re finding is it’s really, really expensive?”
New Hampshire’s meals and rooms tax, which was reduced to 8.5% from 9% last year, is levied on meals and lodging in the state and paid by the customer.
For the fiscal year ended June 20, 2021, the state collected a total of $328.9 million — 84% of it from meals — from the tax and distributed $68.8 million of that amount back to towns and cities.
The meals and rooms tax helps to plug gaps in municipal budgets and is an important tool to offset potential property tax increases, Griffin said. New Hampshire, after years of hearing complaints from municipalities that the state was not refunding the level of revenue required by law, recently agreed for the current biennium to boost the so-called “distribution” to towns.
For Hanover, that will translate to an extra $200,000 per year for two years, Griffin said: “Not insignificant.”
The amount of refund — or distribution — of meals and rooms tax revenue to individual towns is based on population, not the amount of meals and lodging revenue generated by local restaurants, inns or Airbnb rentals. But it can be a hefty chunk of change, especially for smaller towns.
Hanover received $582,000 in meals and rooms tax refund from the state in 2021 and is set to receive $819,500 in 2022, according to the state Treasury.
Lebanon received $712,500 last year and is scheduled to increase to $1.04 million this year.
Raises among other Upper Valley towns include Claremont, which is scheduled to receive $970,600 compared with $670,300 last year, while New London is set to get $305,400 this year compared with $208,300 last year; Sunapee gets $257,400, up from $176,500; and Lyme $127,000, up from $87,500.
Even some restaurant owners aren’t sure how much suspending the 8.5% meals will entice people into spending money out at a time when a gallon of gas is well over $4.
“It sounds more like a feel-good thing. A customer will say, ‘I don’t have to pay tax, that’s cool,’ ” said Nigel Leeming, owner of Hanover pub Murphy’s on the Green. “But I don’t see it as an incentive to go out.”
Leeming noted that like its customers, the restaurant business is having a difficult time keeping up with inflation, especially for restaurants in the semi-rural Upper Valley, which are constrained in how much they can increase menu prices. He recently had to raise the price of the “Murph Burger” $1 from $16 to $17 to keep in line with 6% to 7% higher cost in beef.
Shaun Mulholland, city manager of Lebanon, said that were it not for the higher distribution for the meals and rooms tax approved by the Legislature last year, Lebanon homeowners would be looking at paying higher property taxes.
“We went instead of a 2.5% increase in the tax rate to only a 1% increase in here in the city solely because of the meals and rooms tax,” he said
The New Hampshire Municipal Association, which lobbies the state on behalf of municipalities, said that if the Legislature does go ahead and approve the tax suspension, it should find a way to guarantee that amount reimbursed to municipalities.
“The increased meals and rooms distribution serves as tax relief and has been touted as such by state leaders,” said Margaret Byrnes, executive director of the NHMA, said in an email to members Thursday, urging them to contact lawmakers. “A reduction would affect municipal budgets, which would affect taxpayers.”
The question, however, is where the state would find the funds to make up the difference.
Phil Sletten, a senior policy analyst with the New Hampshire Fiscal Policy Institute, said the state could dip into either its cash surplus, which currently totals about $192 million, or its rainy day fund, which has about $258 million.
Although either fund theoretically could be tapped, the cash surplus might be temporary and depends on future revenues, he noted.
The surplus fund can be drawn upon to cover future revenue shortfalls, Sletten explained, and how much money flows into it is a function of tax revenue coming into the state coffers relative to budget expenses.
“If you reduce revenue by suspending the meals and rooms tax, obviously then you will reduce the amount of revenue that comes into the state,” he said.
Contact John Lippman at jlippman@vnews.com.
