Sales Taxes Top 11 Percent

On March 1, the Arkansas state sales tax was increased by 0.875 percent to a total of 6 percent. The increase is expected to generate $338 million in the next fiscal year to help fund public schools.

When added to all the other sales taxes, that means diners now pay 11.25 percent in taxes for meals in Fayetteville restaurants (and 9.25 percent on most everything else in the city).

Fayetteville, historically the entertainment capital of Northwest Arkansas, has the highest sales tax on restaurant food in the area and apparently one of the highest in the United States.

To put it into perspective, the rate in Fayetteville is more than the sales tax at restaurants in New York City (8.625 percent), Los Angeles (8.25 percent) and New Orleans (9 percent).

“Customers are stunned,” said Rolf Wilkin, president of Eureka Systems Corp. of Fayetteville, the home office of Eureka Pizza. “They think there’s got to be a problem.”

Wilkin said customers often come into one of Fayetteville’s Eureka Pizza restaurants and order the $9.99 special. When the total bill is $11.24, “people are angry,” he said.

“A retailer has to look people in the eye when they buy something,” Wilkin said. “It’s unpleasant … The bottom line is [the tax] is expensive.”

Wilkin said Fayetteville’s 2 percent hotel-motel-restaurant tax applies to all “prepared foods,” meaning that a pound of sliced cheese purchased from a store’s delicatessen is taxed at the 11.25 percent rate.

But, Fayetteville is still No. 2 in Arkansas in terms of the restaurant sales-tax rates. Because of a 3 percent city tourism tax, the total sales tax at restaurants in Hot Springs is 11.5 percent. North Little Rock and Sherwood tied for No. 3 with 11 percent. Eureka Springs is close behind at 10.75 percent.

In other Northwest Arkansas cities, the total sales tax at restaurants is 10 percent in Bentonville, 9.5 percent in Springdale and 9 percent in Rogers.

One reason sales taxes go up faster than other taxes is that the Arkansas Constitution requires a “simple majority” of 51 percent to pass a sales-tax increase compared to a “super majority” of 75 percent to pass an income-tax increase.

Fayetteville’s Food Taxes

– 6 percent state tax (which was raised 0.875 percent on March 1)
– 1.5 percent Washington County sales tax (increased 0.5 percent in 2002 for construction and operation of a new county jail)
– 1 percent city sales tax that has been in effect since 1994 and was renewed in 2002 for 10 more years. The 1 percent tax brought in $13 million in 2003. Most of that amount, $7.8 million, paid for street improvements.
– 0.75 percent Fayetteville sales tax that went into effect in April 2002 to pay for the Wastewater System Improvement Project. That tax brought in $9.7 million last year and will remain in effect until the bonds are paid off, which is estimated to be about 10 years.
– 1 percent city hotel-motel-restaurant (HMR) tax in effect since 1977 that goes to the Fayetteville Advertising and Promotions Commission (bringing in $1.56 million in 2003). A large portion of this money goes to pay off bond issues for the Fayetteville Town Center and the University of Arkansas Center for Continuing Education, both on the downtown square.
– 1 percent city HMR tax in effect since 1995 that goes to fund city parks (another $1.56 million)

Source: City of Fayetteville