Fairfax County Meals Tax Proposal

Fairfax County is exploring the possibility of implementing a meals tax to generate additional revenue. This would apply in addition to the current state sales tax (6%) and would require businesses to collect, report, and remit the tax to the county.

 

Revenue Estimates for Fairfax County:

Each 1% of a meals tax is projected to generate $33 million annually.

If implemented at the maximum rate of 6%, the tax could generate up to $198 million annually.

There are no restrictions on how the revenue generated by the meals tax is spent, meaning it could be allocated to schools, public safety, or other county priorities.

 

Economic Impacts on Businesses

While the meals tax could help Fairfax County generate additional revenue, it may bring challenges for businesses in the restaurant and hospitality sectors

1. Increased Costs for Customers

The meals tax would increase the total cost of dining out, potentially reducing customer spending.

Households earning less than $30,000 annually already spend 9.3% of their pre-tax income on restaurant meals, making them particularly sensitive to price changes.

2. Potential Decline in Employment and Investment

A meals tax in Fairfax County is estimated to reduce employment by 2,057 jobs.

Investment could decline by $40 million countywide, reflecting reduced confidence in the local business climate.

3. Administrative Burden

Businesses would need to adapt their point-of-sale systems to collect and report the meals tax.

 

While the county may offer a dealer discount of up to 5% to offset these costs, compliance will require additional time and effort from business owners.

 

Visitor and Nonresident Contributions

One potential benefit of the meals tax is that it would not fall solely on county residents. Visitors and commuters would contribute significantly:

Approximately 34% of all meals expenditures in Fairfax County are made by nonresidents, including tourists and the 228,000 individuals who commute into the county daily.

Visitor spending on dining in 2022 totaled approximately $1.14 billion, which could generate an estimated $11.4 million in revenue for every 1% of the meals tax.

This means a portion of the tax burden would be shifted to out-of-town customers rather than local residents.

 

Exemptions

Certain sales and establishments would be exempt from the meals tax under Code of Virginia § 58.1-3833, including:

Meals provided by nonprofits for charitable purposes (with limits).

Food sold by vending machines, hospitals, schools, nursing homes, and daycares.

Alcoholic beverages sold in factory-sealed containers for off-premises consumption.

Sales at farmers' markets for vendors earning less than $2,500 annually.

 

Additionally, discretionary gratuities and mandatory gratuities (up to 20%) would not be subject to the tax. These exemptions aim to reduce the impact on specific segments of the community.

 

Regional Comparison of Meals Taxes

Fairfax County is considering implementing a meals tax to generate additional revenue. Below is a comparison of meals tax rates across neighboring jurisdictions and examples from other parts of Virginia:

Neighboring Jurisdictions (Northern Virginia)

Competitiveness for Fairfax County

Fairfax County’s proposed meals tax rate could fall between 4% and 6%, keeping it competitive within Northern Virginia and aligned with regional norms.

Dealer Discounts: Offering a dealer discount of up to 5% in Fairfax County could help offset the administrative burden for businesses, as seen in neighboring towns like Herndon and Vienna.

 

Referenda Results

Meals tax proposals in Northern Virginia have faced strong voter opposition. In Fairfax County, a 1992 referendum failed with only 42% support.

A 2008 referendum in Loudoun County saw even greater opposition, with 70% voting against the tax.

 

Implementation Timeline

If approved, Fairfax County recommends setting the meals tax's effective date no earlier than January 1, 2026. This timeline would allow for:

Businesses adapt their systems and operations.

The county to upgrade its IT systems and ensure efficient tax collection.

 

How It Could Affect Your Business

As a restaurant or business owner, here are the key impacts you may experience:

1. Price Adjustments - You may need to adjust pricing strategies to account for the additional tax, as customers could be sensitive to higher total costs.

2. Customer Behavior - Some customers may reduce dining out or choose less expensive options, especially those with limited disposable income.

3. Operational Adjustments - Point-of-sale systems will need updates to include meals tax collection, reporting, and remittance.

4. Dealer Discount - Fairfax County may offer a dealer discount (up to 5%) to help offset the cost of compliance.

For more detailed information and supporting resources on the meals tax proposal, visit our Meals Tax: Supplemental Information & Resources page.