METHUEN — The city received $229,000 in local meals tax revenue over the final six months of 2012 and expects to take in an additional $350,000 by the end of the fiscal year.
Patrons of Methuen restaurants, eateries and coffee shops began paying the .75 percent surcharge this summer on top of the existing 6.25 percent state sales tax on meals.
“It’s a good move,” said City Councilor Jamie Atkinson. “For a small fee per customer, it’s really turned into a good thing for the city.”
The state revenue department collects both the state and local portions of the meals tax from establishments and redistributes the local revenue back to communities on a quarterly basis.
Methuen enacted the tax July 1, but the state collected no revenue in the city over the initial month and a half — which is typically the case for communities new to the program, according to City Auditor Thomas Kelly.
Because of this, the city received just $54,000 from July to September. Revenue rose to $175,000 between October and December.
All together, Kelly projects the city will receive $575,000 from the local meals tax in the fiscal year ending June 30. That figure is expected to rise to $700,000 in the following fiscal year.
“This is huge for us,” said Kelly.
The City Council approved the local meals tax in May along with an increase to city ambulance service rates. But the ambulance rate increase wasn’t enacted until December. Kelly is still calculating exactly how much the city lost because of the mistake.
Councilors were told they would generate $160,000 in new revenue each year by increasing the ambulance rates.
In approving the meals tax, the council also agreed to direct all resulting revenue into the city’s stabilization fund. Withdrawals from the fund require approval from a majority of councilors.
Kelly said the fund had a balance of about $1 million at the beginning of the fiscal year. He said growing the stabilization fund is key to paying off the city’s share of the $100 million renovation and expansion of Methuen High School without raising property taxes.
The first significant payment on project comes in the fiscal year beginning July 1, 2014, and will cause the city’s debt payments to spike by $375,000. Debt payments are slated to increase by $500,000 and then peak at $745,000 over the following two years.
The Legislature created the local meals tax option for cities and towns in 2009 as part of a municipal relief package. Lawrence, Haverhill, Andover and North Andover all charge the local tax. In New Hampshire, the meals tax is 9 percent.
Under a combined 7 percent local and state meals tax, customers at a city restaurant pay 37 cents in local and $3.13 in state taxes on a $50 restaurant bill. A $100 restaurant bill translates to 75 cents in local and $6.25 in state taxes.
State and local meals taxes are applied to any food or beverage prepared for immediate consumption by a restaurant, including take-out items. The definition of restaurant is wide-ranging and includes everything from cafes, coffee shops and bars to street carts.
Atkinson said any impact on restaurants has been minimal.
“I haven’t heard any complaints at all,” said Atkinson. “I didn’t receive any calls from restaurant owners.”