Entertainment Taxes Are No Fun

While taxpayers have a choice whether to stay home or dine out and support area businesses, they should not be forced to pay for a commercial developer’s business loan. This type of tax increase should go to a vote of the people.

Do Iowans want to pay supercharged sales taxes when they go out to eat?  Will they be excited if their favorite local restaurant has to start levying a new charge on every slice of pizza or chicken wing?  Are Iowans clamoring for local governments to take even more of their money?  These questions might have to be answered if cities are allowed to create designated entertainment districts and institute a new entertainment tax of 3 percent as proposed in two pieces of legislation, SF309 and HF412.

At first glance, the sticker price might seem low, but the new tax would be added on top of the state sales tax, local sales tax, and the hotel/motel tax that’s already being charged at entertainment establishments, restaurants, bars, and lodging in those districts.  The tax for dining out in one of these districts could be as high as 10 percent, while staying overnight would be subject to a 15 percent tax.  We can’t imagine a better way to roll out the red carpet to the families of traveling youth sports teams.  “Welcome to our community.  Come for the softball, stay for the higher taxes!”

The concept that is being considered in Iowa at the moment is very similar to a tax that exists for our neighbors to the west in Omaha, Nebraska. That city has added a special restaurant tax and enhanced employment area tax, both of which essentially function like Iowa’s proposed entertainment district tax. Between July 2017 and July 2019, four of these taxes appeared in Omaha: the Capitol District, TopGolf, the Blackstone District, and Avenue One. Since then, Hotel Deco, Landmark Building, and Village Pointe have brought the number of special taxing districts within Omaha to a total of seven.

 It’s clear once new taxes are created, they quickly grow, adding another financial burden to taxpayers who are already paying high taxes and fighting inflation. In fact, Omaha’s Capitol District tax was approved in 2017, but the developer returned to city officials in 2020 asking for a tax increase.  In addition to the fact that Omaha is not receiving the level of tax revenue officials anticipated from these special districts, taxpayers are confused, too.  Different areas of that city have different rules and different tax rates, leaving diners wondering just how much tax they are going to have to pay at any given establishment.

Supporters of the policies like these often insist that only customers of the districts will pay the tax.  While that may be true, does it seem fair to soak visitors from out of town, or even your local residents who have the misfortune of living near one of these districts?  Another argument made by proponents of special taxes are that developers or cities need the financial boost to make their projects viable. If a project isn’t financially viable without squeezing more money from the taxpayer, then the project isn’t viable, period. Besides, many of these entertainment districts could very well end up in areas that are already built and growing.  Those tax bases are already benefiting from the additional activity, why does everyone need to pay more for something that already exists?

While taxpayers have a choice whether to stay home or dine out and support area businesses, they should not be forced to pay for someone else’s ambitions. If local governments can’t afford a project without charging a new tax, they should forgo that new project.  Local governments have to learn they cannot spend more than they are already making, just like the rest of us.

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