Fox Lake food, drink tax giving businesses indigestion

Fox Lake officials estimate the village stands to lose $500,000 to $800,000 in state revenue when legislators finally figure out a solution to the state budget crisis.

So, rather than waiting to cut budgets, personnel and programs to make ends meet, village officials decided in April to recoup some of the losses with a 1.5-percent "places for eating" tax on food and drinks served in local restaurants and taverns - just in time for the arrival of warm-weather tourists visiting the Chain O' Lakes.

However, some business owners in the village say they are the ones taking the hit. Complaints range from those off the water where few boaters go to eat and drink who say the specialty tax is cutting into their profits, to others who say it puts them at a disadvantage in an area with plenty of bars and restaurants that aren't subject to the tax.

"They said they are doing it like this because it won't affect Fox Lake residents as much," said Noel Working, owner of Marianne's Channel Inn Restaurant on Grand Avenue. "But, 80 percent of my customers are Fox Lake residents."

Mayor Donny Schmit said the tax approved by a 5-1 margin includes all food and beverages sold at retail eating establishments. Grocery and liquor stores are not affected, Schmit said.

It amounts to about 75 cents on a $50 restaurant tab, he said, and is generally passed on to customers through higher prices. The village expects it to generate about $350,000, he said.

"This is as close to a pass-through tax as we could get," Schmit said. "People who come here and enjoy the Chain and the boating will help pay the tax, not just the residents."

It's not a mandatory tax like a gasoline or utility tax, he explained, but instead is one on discretionary spending.

Schmit said a key reason behind implementing the tax is 75 percent to 80 percent of those affected by it in the summer are out-of-town tourists who visit Fox Lake.

"The last thing I wanted to do was reach into our residents' or business owners' pockets," he said. "I wish I didn't have to do it, but we have cut village staff to the bone and it's either we find new revenue or we cut programs."

However, critics like Working say Fox Lake residents also are affected, especially once the boating season ends this fall and tourists are no longer in town.

Working said while some boaters dine at his Grand Avenue establishment, the number is far less than what restaurants on the water see.

In addition, he said, while the food tax can be added to the bill and passed on to customers, it's not as easy when dealing with single beer prices. Those prices generally rise or fall by 25 cents for ease in giving change, making it nearly impossible to raise beer prices by a nickel to cover the tax. Raising the price of a beer by a quarter, puts him in a competitive disadvantage, Working said.

"I can't raise my price to $3.25 unless other bars around me do it, too," he said. "I'm actually just paying the tax out of my pocket right now."

If his restaurant does $20,000 in liquor sales a month, Working said, the tax is costing him about $300 out of pocket.

Jason Justen, owner of J's Bar and Grill on Route 59, said he faces a similar situation.

"They are taking the money straight out of my profits, and trust me, there isn't much there," Justen said. "Like everyone else in town, my beer is $3, and I can't raise it to cover the tax."

Justen estimates he's sending the village about $300 a month from his profits to pay the new tax.

"I can't raise my prices to cover it because the next bar down the road is not in the village and I have to stay competitive," he said. "In the greater scheme of things, a point and a half doesn't seem like much. But, it all adds up."

Linnea Pioro, the executive director of the Fox Lake Chamber of Commerce, said while she understands the tax could hurt some businesses, it's in place for a reason.

"The village just isn't trying to be the bad guys and raising taxes just because they felt like they wanted to. They did it for a reason," Pioro said. "The village benefits from businesses and businesses benefit from the village. I think everyone has to look at the balance of it, and if a business has to raise prices slightly to offset costs, that's part of running a business."

Village Administrator Anne Marrin said the state provides Fox Lake with about $1.3 million in revenue annually, or about 10.3 percent of the village's $13.3 annual budget. State revenue comes from property, income and motor fuel taxes.

That amount is likely to fall because of cuts expected in the new state budget, though how much won't be known until after the budget is approved.

Schmit said he will propose additional cuts as needed once officials see how much state revenue the village will receive.

"The biggest issue is that. If I knew how much they were cutting, we could deal with it," he said. "All we know is that we will have our funds cut, but we have no idea how much it will be."