There’s no such thing as a tax-free lunch — or at least there shouldn’t be, according to a number of New Hampshire town officials.

Municipal administrators across the Granite State took umbrage after Gov. Chris Sununu suggested March 9 that New Hampshire lawmakers should suspend the state’s meals and rooms tax this summer, pitching it as a way to give residents and tourists some relief from the ravages of inflation.

But town officials worry that a suspension of the levy could undermine municipal budgets.

“I nearly spit out my coffee when I opened my browser and read it,” said Hanover Town Manager Julia Griffin, describing her reaction when she learned of the proposal. “The timing on this is just lousy.”

Griffin’s near spit take aside, Sununu’s comments, made during a business forum hosted by the New Hampshire Institute of Politics in Manchester, indicate he sees the proposal as a winner.

“Let’s give everyone a 10 percent coupon on their summer vacation,” Sununu said, as reported by the NH Union Leader. “We’re coming up to May and June, the kickoff of tourism season. … What if we suspended that altogether for a couple of months, because what we’re finding is it’s really, really expensive?” New Hampshire’s meals and rooms tax, which was reduced to 8.5 percent from 9 percent last year, is levied on meals and lodging in the state and paid by the customer.

For the fiscal year ended June 20, 2021, the state collected a total of $328.9 million — 84 percent of it from meals — from the tax and distributed $68.8 million of that amount back to towns and cities.

The meals and rooms tax helps to plug gaps in municipal budgets and is an important tool to offset potential property tax increases, Griffin said. New Hampshire, after years of hearing complaints from municipalities that the state was not refunding the level of revenue required by law, recently agreed for the current biennium to boost the so-called “distribution” to towns.

For Hanover, that will translate to an extra $200,000 per year for two years, which Griffin said is “not insignificant.”

The amount of refund — or distribution — of meals and rooms tax revenue to individual towns is based on population, not the amount of meals and lodging revenue generated by local restaurants, inns or Airbnb rentals. But it can be a hefty chunk of change, especially for smaller towns.

Even some restaurant owners aren’t sure how much suspending the 8.5 percent tax on meals will entice people into spending money out at a time when a gallon of gas is well over $4.

“It sounds more like a feel-good thing. A customer will say, ‘I don’t have to pay tax, that’s cool,’” said Nigel Leeming, owner of Hanover pub Murphy’s on the Green. “But I don’t see it as an incentive to go out.”

Leeming noted that, like its customers, the restaurant business is having a difficult time keeping up with inflation, constrained in how much they can increase menu prices. He recently had to raise the price of the “Murph Burger” from $16 to $17 to keep in line with the 6-to-7 percent increase in the cost of beef.

Touted as tax relief

Shaun Mulholland, city manager of Lebanon, said that were it not for the higher distribution for the meals and rooms tax approved by the Legislature last year, Lebanon homeowners would be looking at paying higher property taxes.

“We went, instead of a 2.5 percent increase in the tax rate to only a 1 percent increase in the city solely because of the meals and rooms tax,” he said.

The NH Municipal Association, which lobbies the state on behalf of municipalities, said that if the Legislature does approve the tax suspension, it should find a way to guarantee that amount reimbursed to municipalities.

“The increased meals and rooms distribution serves as tax relief and has been touted as such by state leaders,” wrote Margaret Byrnes, executive director of the NHMA, in an email to members, urging them to contact lawmakers. “A reduction would affect municipal budgets, which would affect taxpayers.”

The question, however, is where the state would find the funds to make up the difference.

Phil Sletten, a senior policy analyst with the NH Fiscal Policy Institute, said the state could dip into either its cash surplus, which currently totals about $192 million, or its rainy day fund, which has about $258 million.

Although either fund theoretically could be tapped, the cash surplus might be temporary and depends on future revenues, he noted.

The surplus fund can be drawn upon to cover future revenue shortfalls, Sletten explained, and how much money flows into it is a function of tax revenue coming into the state coffers relative to budget expenses.

“If you reduce revenue by suspending the meals and rooms tax, obviously then you will reduce the amount of revenue that comes into the state,” he said.

This article is being shared by partners in the Granite State News Collaborative. For more information, visit collaborativenh.org.

NH’s meals and rooms tax helps to plug gaps in municipal budgets and is an important tool to offset potential property tax increases.