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Restaurant tax to fund tourism: $8 million projected.



One percent added to a meal of $6 is just six cents, but that six cents could add up to $8 million in revenue for Utah's counties. That's what Utah lawmakers are hoping will result from the new restaurant tax, enacted in the 1991 Legislative session. The additional tax became effective July 1.

In a related bill, the state appropriated $15 million in state money that will help fund expansion, upgrading, and maintenance of the Salt Palace. Salt Lake county and city officials say the Salt Palace is too small to accommodate large conventions, saying groups will instead take their business to larger, more modern facilities in other cities.

The Salt Lake Convention and Visitors Bureau estimates that during the last few years Utah has lost 50 conventions--due to inadequate facilities--that would have spent about $100 million in the state.

A County-by-County Option

The restaurant-tax bill allows Utah's 29 counties the option to collect up to 1 percent additional sales tax on all prepared foods. Most of the revenues generated from the additional restaurant tax will help finance tourism promotions within the respective county. Grand County, for example, may utilize the revenues to pay for new restrooms and visitors' facilities to accommodate its growing numbers of bikers.

The measure also allows Salt Lake County to add another 1/2 percent to the hotel lodging tax. The extra lodging tax will help fund Salt Palace maintenance. This fall, when the Utah Jazz and the Golden Eagles move their games to the new Salt Lake Sports Arena, the Salt Palace will lose its two major tenants and the rent they now pay that covers maintenance and operation of the civic center.

House Majority Leader Rob Bishop, R-Brigham City, sponsored the bills, items that ended up generating much controversy and dialogue during the session, especially by lawmakers and restaurant owners outside the Salt Lake area. "No one likes what we did, including myself," Bishop said. "But the best approach to upgrading the Salt Palace was a compromise. Everyone is a little happy and a little disappointed at the same time."

Last year, the Legislature faced the same dilemma about how to fund the modernization of the Salt Palace. "The bill died just eight minutes before midnight on closing day," recalls Patricia Simmons, director of government affairs for the Salt Lake Area Chamber of Commerce.

Salt Lake County commissioners believe the extra tax is an equitable means of supporting the state's primary convention facilities, as well as improvements to the Capitol Theater and Symphony Hall in Salt Lake and other community facilities throughout the state.

Jim Bradley, chairman of the Salt Lake County Commission, reported that an analysis of the market potential of the Salt Palace will be conducted to guide expansion plans. "We don't want to build it too big, or not big enough," he said.

Many restaurant owners, however, are not convinced that the new tax is an investment that will yield gains in tourism. "This tax is very inappropriate," said Richard Smith, operating partner of the American Grill restaurant. "We don't come close to benefitting from whatever conventions the Salt Palace brings in. In fact, I see very few of them out here at Cottonwood Mall," he continued.

Restaurant Association Plans to Fight

How do the state's restaurant owners feel about the new tax?

Many restaurant owners in southern Utah agree with Smith. "When you get into a local situation like Cedar City, we don't need nor can we support a convention center," said Robert Wallin, partner in Color Country Management. His firm owns Sizzler restaurants in Cedar City and St. George, Utah, and in Montrose and Grand Junction, Colo. "Convention centers in small towns start to deteriorate the restaurant industry," he said. He explains that, because communities cannot pay for such a facility by renting it, convention centers start to provide banquet services, thereby directly competing with restaurants. "The Dixie Center in St. George is a classic example," said Wallin. "It--and most convention centers--can never be self sustaining. That's the issue: using tax dollars for something that can't be self-sustaining," said Wallin. He also pointed out that many of the residents of southern Utah are on fixed incomes. "More taxes only decrease their spendable money; once their money is spent, people go out to eat less," he said.

Ron Morgan, president of the Utah Restaurant Association, agrees that Utah needs to do more to promote tourism throughout the state, but he doesn't think the added tax is the way to go about it. The group wanted to give directly to the Utah Travel Council 60 percent of the revenues generated by the 1 percent tax increase. Restaurants wanted to help the Travel Council fund advertising programs and promotions that generate new visitors and new dollars to the state. It does not, however, support paying the entire 1 percent to pay for maintenance of existing facilities that, according to Morgan, are used by only a small percentage of people.

"We advocate a measure that will result in more tourists coming to the state," said Morgan. "More tourists mean more new revenues from taxes, which means more money for schools, highway repairs, and social services. Everyone, therefore, benefits from the direct relationship between advertising and the resulting numbers of tourists who come."

The organization of 2,000 restaurants will now work to gather 65,000 petition signatures until July 1992, enough to add the issue to the 1992 statewide November ballot for the voters to decide. "We don't object to the Salt Palace and similar facilities," said Morgan. "We object to the citizens of Utah having to pay for them."

He said that many popular convention cities, such as Chicago, pay for such facilities through the transient room tax and by charging users' fees.

Simmons, who helped draft the bill, commented that many restaurant owners don't seem to understand the law. "Every community has the prerogative to impose the tax and to spend the money as it sees fit," she said.

The Search for Funding

In part, tourism promotion in Utah is funded by the hotel transient room tax now levied at 3 percent statewide. Some communities have chosen to charge 4 percent. Several restaurant owners believe this tax should have been raised to fund the costs of operating the Salt Palace. In order to get enough money required for operation and maintenance, however, the county would have needed to raise the transient room tax by another 3 percent, according to Simmons. Hotel rates in Salt Lake City, replied Morgan, are "still unbelievably low compared to other cities." In addition, last year 3 percent was added to the cost of rental cars leased within the state.

Funding Projects around the State

In addition to the $15 million the state is contributing to the Salt Palace, it appropriated $2 million for improvements to facilities in other parts of the state, including the Capitol Theater in Logan, the Egyptian Theater in Ogden, the Shakespearean Theater in Cedar City; the Union Depot in Ogden, Hill Air Force Base Museum, and a community theater in Perry, Box Elder County.

Salt Lake City and Salt Lake County each will pay an additional $15 million toward Salt Palace improvements. With $60 million in financing secured--after years of planning and fund-raising--the Salt Palace expansion project will move into the design and implementation phase. Construction on a new ballroom and exhibit hall will begin next year.

According to Rick Davis, president of the Salt Lake Convention and Visitors Bureau, "The $60 million is coming from many tax sources. Everyone who lives, works, and visits in Utah [is paying for these facilities]," he said. "The benefits of tourism are shared by all people in the hospitality industry-restaurants, hotels, transportation, and so on. Those who benefit should share proportionately the responsibility of improving the facilities."

The Benefits of Tourism

The Salt Lake Convention and Visitors Bureau estimates that revenue derived from convention business is distributed as follows: 50 percent to hotels; 20 percent to restaurants; the remainder to businesses involved in travel, retail, and entertainment.

Advocates of the tax maintain that conventions held at the Salt Palace and other sites within the state generate return visits, longer stays, and attract more tourists to Utah.

"The state needs a viable, competitive convention center, one that the state as well as local governments benefit from," said Bishop. "The convention center will never break even, but the spinoffs from convention business will benefit everyone--guests will stay longer; attendees will return to the state; we will have more exposure for the state when visitors realize Utah's potential if looking to relocate."

"This is not just a Salt Palace bill," Simmons emphasized. "It will help benefit tourism and recreation throughout the state."

Cheryl Smith is associate editor of Utah Business.
COPYRIGHT 1991 Olympus Publishing Co.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Utah tax law
Author:Smith, Cheryl
Publication:Utah Business
Date:Jul 1, 1991
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