METHUEN — The city collected $580,000 in local meals tax revenue over the last 10 months, which is right on target with projections made shortly after the tax was approved by the City Council last year.
Patrons of Methuen restaurants, eateries and coffee shops now pay a .75 percent local surcharge in addition to the existing 6.25 percent state sales tax on meals.
Under a combined 7 percent local and state meals tax, customers at city restaurants 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.
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.
After generating $56,000 from the local tax in September, Methuen collected roughly $175,000 in each of the three quarters that followed for a fiscal-year-end total of $579,747.99.
All of that money has been placed in the city’s stabilization fund with the intention of paying off the ongoing Methuen High School renovation and expansion project, according to City Auditor Thomas Kelly.
Moving forward, Kelly said the city expects to collect about $175,000 every three months. And with the tax now in place at the start of the fiscal year, the city can expect to see $700,000 in local meals tax revenue between now and June 2014.
“It’s only going to get better,” Kelly said.
Methuen began last fiscal year with $300,646 in its stabilization fund. Withdrawals from the reserve require approval from a majority of city councilors. After $90,000 was removed to pay for the high school project, Kelly said the city now has about $790,000 in the fund. By next summer, that number is expected to rise to $1.5 million.
Kelly said growing the stabilization fund is key to paying off the city’s share of the $100 million high school project without raising property taxes. The first significant payment on the 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.
“We need to grow our reserves,” said Kelly. “Everything is going according to plan, which is something I’m excited about.”
The state 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.
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.
The City Council approved the local meals tax in May 2012 along with an increase to city ambulance service rates.
Methuen enacted the local meals tax July 1, but the state collected no revenue in the city over the initial two months, which is typically the case for communities new to the program, Kelly said.