Kentucky Judge Ponders Town’s Restaurant Tax

September 12, 2007

Attorneys in Elizabethtown, Kentucky argued yesterday that the town’s proposed restaurant tax violates the state constitution. Legally, restaurants would be responsible for paying the tax, but because all taxes are eventually paid by individuals, the tax will be just a way to tax consumers while hiding the burden. Further, the money will be used to “encourage tourism,” as if raising restaurant prices won’t reduce all business, tourist or not.

A provision of the 1891 state constitution stated that towns up to a population of 7,999 can enact a restaurant tax, though that part was narrowly repealed in 1994, on condition that it remain in effect until the state legislature replaced it with alternative criteria. The state legislature never did so, and because Elizabethtown’s population is 23,450, restaurant owners say that it cannot impose the tax. They had tried and failed to get the City Council to amend the law.

The Elizabethtown News-Enterprise has an online poll today asking readers if the judge should delay implementation of the tax until a decision on the legal challenge has been reached. As of 10:00 A.M., the poll was running 83% yes, 17% no. One town resident writes a letter calling for it to be submitted to the voters, warning, “Once the tax starts it never will go away.”

A tourist industry worker writes that the restaurant tax is good because it’s “voluntary.” He’s wrong—there is no such thing as a “voluntary tax.” Taxes are by definition involuntary because they are imposed by government and collection is enforced by law. While the purchase of the service may be “voluntary,” the payment of the tax is certainly not. If you buy a meal in an Elizabethtown restaurant, you will not have a choice of whether or not to pay the tax. If a tax became “voluntary” just by avoiding the trigger that mandated it, then every tax would be voluntary, including sales taxes, income and wage taxes, cigarette taxes, and gasoline taxes. What matters is not voluntariness, but incidence—who ends up paying the tax in the end, and where the money goes.

If Elizabethtown’s residents want higher taxes for more spending within the town, they should be willing to raise taxes on themselves, rather than exporting them to out-of-towners in a hidden, indirect way that punishes one subset of entrepreneurs.

The judge is expected to rule late next week, before the tax takes effect on October 1.

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