It started, as investigations so often do, with a trip to the McDonald’s drive-thru window.
On a recent Sunday morning, Mike drove over to the Golden Arches to buy himself three sausage biscuits. Don’t judge the man. He was hungry.
Before he lovingly unwrapped sausage biscuit No. 1, Mike noticed something peculiar about the bill. It’s $3 for three sausage biscuits, and the taxes charged were 30 cents, bringing his total to $3.30.
Except, Mike knew, or thought he knew, that Omaha’s restaurant tax is 2.5 percent, and local and state sales tax is 7 percent. For those, like me, who are bad at math: 9.5 percent does not equal 10 percent, which is what Mike had just been taxed on those three delicious biscuits.
Was this a mistake? Was Mike being slightly overtaxed by McDonald’s? Or are the taxes we pay at Omaha restaurants a teensy bit higher than it might seem?
“I got a little suspicious,” Mike says. “I got a little angry. I wanted to know why.”
It seems darn near impossible to write about the restaurant tax without Omahans getting angry. Lots of Omahans and restaurant owners hated it when it was enacted in 2010 and said it would drive hungry people to dine outside the city limits. Then-City Council member Jean Stothert campaigned against it, ousting incumbent Mayor Jim Suttle in part because the restaurant tax was the Suttle administration’s brainchild.
But, nearly a decade later, the tax remains in place. It has faded as a white-hot local issue, but it’s still an annoyance for some. And it looks like it’s here to stay.
Each year, Omahans and out-of-towners continue to dine out more and more, seemingly disproving the theory that the restaurant tax would wound the restaurant industry. And, as the amount of restaurant tax revenue increases, so does the city budget’s reliance on this money.
This year, the restaurant tax — the extra quarter you pay each time you spend $10 at a restaurant — will bring an estimated $34 million. Nearly a third of that money comes from out-of-town diners.
That $34 million represents one out of every $11 flowing into the city’s general fund.
“I don’t think I would call any tax a success,” says City Finance Director Steve Curtiss when I point out that the restaurant tax brings in more money each year while seemingly not discouraging us from eating out. “But stating those observations as you just did, I think those are all true.”
Mike and his longtime significant other Karen Jarnecic are not wild about the restaurant tax. But, after Mike’s fateful McDonald’s trip, they became far more focused on the following question: How much do we actually pay in taxes when we go out to eat?
Karen and Mike are numbers people. So they started to collect restaurant receipts.
This wasn’t hard, as Mike and Karen go out to eat at least four times a week. In this way, they seem like the poster children for the effectiveness of the restaurant tax. They don’t like it, but it hasn’t caused them to eat out any less.
“It definitely doesn’t impact our behavior,” Karen says.
But now when they went out, they took the receipts, pulled out their iPhones and right there at the table calculated the percentage of tax listed on each one. What they found was nerdily fascinating.
At Hiro: 9.7 percent. At Stokes: 9.68 percent. At Timber: 9.68 percent
At Fleming’s: 9.69 percent. And again at McDonald’s: 10 percent.
No, we do not pay 9.5 percent. We pay just a little bit more. The difference is minuscule — about 18 cents on each $100 spent, with the state getting most of it — but the point was never really the money, not to Karen and Mike.
They simply want to know: Why?
A quick call to the city’s finance director brought an end to this odd investigation.
Curtiss says that yes, the restaurant tax is 2.5 percent and yes, the sales tax is 7 percent. But they aren’t simply added together and then applied to your bill. Rather, due to state law, the sales tax is applied to the entire total including the restaurant tax — a calculation that makes our taxes at restaurants just a little higher than we might have imagined.
“State law dictates that we put the 2.5 (restaurant tax) on first,” Curtiss says. “And then sales tax is levied on that total.”
So yes, we do actually pay roughly 9.68 percent in taxes when we go out to eat. Sometimes we even pay a tad more, depending on the restaurant’s cash register software and on the reality that you can’t split a penny. (Hence that 10 percent tax at McDonald’s.)
You might not like it. Mike and Karen do not particularly like it. But at least now they know the truth down to the final decimal point.
“I’m a realist,” Mike tells me, after he, Karen and I finish lunch at Firebirds Wood Fired Grill at Village Pointe, and after we calculate the receipt and confirm that yes, we are paying 9.7 percent in tax today. “I’m okay with the reality, which is that (the restaurant tax) is not going to go away and I’m going to have to deal with it.
“Here’s my thing, though. Let’s tell people their effective tax rate. Let’s be transparent.”