Omaha's new restaurant tax will take effect as scheduled Friday.
Douglas County District Judge Marlon Polk refused to grant a temporary injunction Thursday against the 2.5 percent restaurant tax, which applies to restaurant and bar tabs and catering bills in the city.
In issuing his opinion, Polk said the plaintiffs failed to show that the restaurant tax was actually a sales tax or that the new tax would cause their businesses irreparable harm
The lawsuit, which was filed Wednesday, said Omaha's new dining tax is “unconstitutional, illegal and unenforceable.”
The paperwork was filed in Douglas County District Court by a group of restaurant owners seeking a temporary and permanent injunction to stop the tax from taking effect.
The judge heard testimony Thursday from Tony Fucinaro Jr., owner of Anthony's Steakhouse, and Nicole Jesse, owner of La Casa Pizzaria.
Both said they were unsure whether their cash registers would be ready in time to start collecting the tax Friday. They said updating their software to collect the tax would be an additional expense to their business.
Assistant City Attorney Tom Mumgaard testified that businesses face increased costs all the time. He asked the restaurant owners if they would be able to manually figure the tax until their software has been updated. Both said yes.
City Finance Director Pam Spaccarotella told the court that the restaurant tax is not a sales tax as the plaintiffs maintain.
The difference, she said, is that the restaurant tax is charged to the business — it can pass the tax onto customers or pay the tax itself. The city and state sales tax, on the other hand, is levied directly on the customer.
Those making the request included Anthony's Steakhouse, La Casa Pizzaria and the Omaha Restaurant Association.
Jennie Warren, executive director of the restaurant association, said that since the tax was proposed last summer, local restaurant owners have worried about how they'd implement it and how it would affect their business.
“The closer it gets to (Friday), the more out of control it gets,” she said. “People are really kind of freaking out.”
Mayor Jim Suttle included a 4 percent restaurant tax in his 2011 budget proposal. But in August, the City Council approved a budget that included a smaller restaurant tax, as well as increases in the city's property tax and wheel tax.
Most of the $14.8 million in annual revenue from the restaurant tax will be put into the police and fire pension fund next year to help address an estimated $620 million long-term shortfall. The rest will go for city operations.
Omaha attorney D.C. “Woody” Bradford, who filed the application for a temporary injunction, said the tax is nothing more than a sales tax.
Bradford said the city is doing an “end-run” around state law that specifically spells out how much cities can charge in sales tax: 0.5 percent, 1 percent or 1.5 percent. Those local sales taxes are on top of the state-imposed 5.5 percent sales tax.
Two other Nebraska cities have approved a tax on dining. As of Jan. 1, Lincoln will impose a new 2 percent tax on bar and restaurant tabs to help pay for construction of a $340 million arena.
Grand Island added a 1.5 percent tax on restaurant food and beverages two years ago to finance improvements needed to move the Nebraska State Fair from Lincoln to Grand Island.
Lincoln City Attorney Rod Confer said there's been no significant opposition, legal or otherwise, to that city's restaurant tax.
“The idea was that it would be beneficial to the restaurants to have the arena built,” he said.
Bradford said he's concerned that Omaha could eventually look to increase the 2.5 percent restaurant tax if the city needed more revenue.
“The danger here is, if they can pass this kind of tax without a vote of the people and without the Legislature, then their ability to tax is unlimited,” he said.
Bradford said the additional tax almost certainly will drive restaurant-goers outside the city, causing a decrease in business.
To obtain the temporary injunction, Bradford had to show that the restaurants would be irreparably harmed if the tax isn't stopped. In other words, they wouldn't be able to recoup whatever losses they would incur.
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