There has been news over the last month or so of a cluster of local restaurant closings. I’ve heard a lot of different reactions, including “Well, only the strong survive!” and “There are too many restaurants in Louisville as it is!” and “Competition is good!” and of course that old chestnut, “Their prices were too high for what they were serving, anyway.”
Restaurants in this city do seem to open and close with startling frequency all the time. In recent years, we’ve often had as many restaurants open their doors as others close theirs permanently in the same quarter. This frenetic activity is the result of a rich, long-established restaurant culture combined with a low cost of living and commercial leases when compared to other cities of our size. In addition, there’s what I call the “Sullivan Effect”, whereby lots of folks who move to the city to attend culinary school remain to make their lives in Louisville after they graduate, and charge into the future with new restaurant concepts, eager to revamp and renovate spaces in which to present to the city their carefully curated menus, culinary philosophies, and design aesthetics.
In Frankfort, they’re now waving a big sharp needle around our restaurant bubble. House Bill 345. sponsored by State Rep. Rob Rothenburger (R-58), would allow cities to impose up to a 3 percent tax on restaurants, in addition to the 6 percent sales tax they already collect. If the bill passes, many restaurants will be forced to increase their menu prices or close their doors, because even though three percent doesn’t sound like a lot, it’s actually dangerously close to the national common average restaurant profit margin of between three and five percent. Imagine being faced with half-to-all your profits being taxed away. You’d have little choice but to pass the costs on to your customers.
The bill aims to inject this money into state tourism, distributing “at least 25 percent of revenues generated to the tourist and convention commission, the remainder to be used to create or support infrastructure supporting tourism.” And while there’s no denying that tourism is great for the state, and great for the businesses within it, legislators need to understand that most local restaurant profits are driven by – you guessed it – “locals:” people who live in the city and return to their favorite spots time and again. It’s the repeat business from Marty and Janine down the street that keeps local restaurants afloat, not the bi-annual visit of your aunt and uncle from Wichita.
Bill 345’s sponsor, State Rep. Rob Rothenhburger (R-58) has all kind of feelings about the proposed tax. “The restaurant tax, I feel, is a more fair tax. It’s basically a consumption tax, so that you have a choice if you go to a restaurant and you pay a little bit at a time,” he said. But, Rep. Bob! That means Marty and Janine will choose part of the time to skip patronizing those local businesses who’ve been forced to raise menu prices to survive the new tax. I thought you Republicans were against new taxes, anyway!
With momentum gaining in a national movement towards paying workers a living wage, and large cities continuing to enact mandates increasing the minimum wage (as they should!), small businesses – especially those in the hospitality category which depend on optional household discretionary funds – are stretched to the breaking point. Both fledgling and established restaurants in Kentucky will suffer, and many will close, due to the effects of another added tax burden.
Restaurant profit margins are already as thin as the chimera our restaurants are perched upon. All over the country, states and municipalities give massive tax breaks to large corporations with hope that they’ll create jobs in our cities. Proposed tax hikes such as House Bill 345 can and will actually destroy jobs at independent restaurants across the state, including Louisville.
Put that in your bubble tea straw and smoke it.
Marsha Lynch has worked at many Louisville independent restaurants including Limestone, Jack Fry’s, Jarfi’s, L&N Wine Bar and Bistro, Café Lou Lou, Marketplace @ Theater Square, Fontleroy’s and Harvest.