Meals Tax To Be Explored By Fairfax Board To Diversify Revenue

FAIRFAX COUNTY, VA — A measure to explore the use of a meals tax as a way to offset the over-reliance on real estate taxes to pay for county services was approved Tuesday by the Fairfax County Board of Supervisors.

"The cost of supporting our schools and all of our services continues to fall disproportionately on our local homeowners," said Supervisor Dalia Palchik (D-Providence) who introduced the measure during the board's meeting. "As we look for additional tools to diversify our tax base, we cannot leave any in the toolbox."

The measure, which was co-sponsored by Chairman Jeff McKay (D-At-Large) and Supervisor Kathy Smith (D-Sully), called on County Executive Bryan Hill to bring all options for revenue diversification, including the implementation of the meals tax, to the board's Sept. 17 Budget Committee meeting.

"Options for the meals tax should include a range of 1 to 6 percent and subsequent revenue projections for each," said Palchik. She and Smith serve as the vice-chairs of the budget committee with McKay acting as its chairman.

The measure also called on Hill to provide comparisons with nearby localities that have already implemented a meals tax, as well as a timeline and the cost for implementation, including estimates for industry. Also, Hill's report needed to include any restrictions on the use of revenue generated by the meals tax.

"We asked the county executive to provide a draft community outreach strategy for potentially implementing the meals tax," Palchik said. "Part of the timeline for implementation includes work with our businesses. We expect restaurants and other local businesses to be substantially included in the outreach process."

On May 7, the supervisors approved the Fiscal Year 2025 budget, which included a 3-cent increase of the real estate tax rate. The board also approved guidance for FY 2026, which included language directing Hill to review all available taxing authorities and present recommendations on how the county could diversify its tax base to offset its over-reliance on the real estate tax.

Related: 3-Cent Real Estate Tax Increase In Approved Fairfax County Budget

"Real estate tax revenue has increased from 63.5 to 66 percent of the county's entire general fund revenue," Palchik said. "This is creating an affordability challenge for all Fairfax County residents, particularly those on fixed incomes and those who are already struggling to make ends meet and the high cost of living in the region."

The county needed to diversify its tax revenue and explore other ways to fund county schools, according to Palchik.

"We continue to be challenged by chronic, inadequate state support for schools as is identified in the 2023 Joint Legislative Audit and Review Commission (JLARC) study, which found that the state uses a complex and unreasonable funding formula that results in the underfunding of schools by $1,900 per student when compared to the national average," Palchik said. "FCPS estimates that if all JLARC's recommendations were implemented, FCPS would have received an additional $568.7 million this year alone."

Currently, any county in Virginia is allowed to impose a 6 percent food and beverage tax. Nearby jurisdictions with a meals tax include:

• Alexandria City: 5 percent meal and beverage tax on the purchase of food or beverages.
• Arlington County: 4 percent tax on the sale of prepared meals and beverages.
• Fairfax City: 4 percent tax on every meal served at a city restaurant, regardless of whether the meal was prepared at the restaurant.
• Herndon: 3.75 percent tax on the purchase of all prepared or ready-to-eat food and beverages.
• Vienna: 3 percent tax on purchase of meals and lodging.

Palchik's meals tax measure prompted a lengthy discussion among board members, with the lone Republican voicing the most objections.

"I'm disappointed that this is focused on revenue and we still have yet to do anything that focuses on spending as a board," Supervisor Pat Herrity (R-Springfield) said. "I proposed a deep dive on the budget to look at efficiencies and [input from] outside groups."

Herrity recommended that the board continue to advocate for additional funding from the state rather than implement a meals tax.

"It's 'One Virginia', but we've got to get our fair share back at least," he said. "Residents have pretty strongly said this isn't a way that they want to see us go."

Before calling for a vote, McKay reiterated that the measure only directed county staff to provide the board with information about a meals tax. The board was not implementing a meals tax.

"If we want to be transparent with the voters and residents, we need to get this data and information that is in this," McKay said. "This is not new. Our budget guidance as adopted asked the county executive to do this. This is setting that date of Sept. 17 for us to get data. No decision is being made here."

The board then approved Palchik's measure on a 9-1 vote, with Herrity voting, "No."

Read the full text of Supervisor Dalia Palchik's board matter below.

Members of the Board,

As part of the adoption of the FY 2025 Budget, the Board of Supervisors approved Budget
Guidance for FY 2026 that included direction to the County Executive to review all existing
taxing authority and come back to the Board with recommendations for strategies to
diversify our revenue base and reduce the over-reliance on the Real Estate Tax.

The FY 2025 budget presented a challenging year, as do the projections for the FY 2026
budget. Over the past 10 years, real estate tax revenue has increased from 63.5 to 66% of
the County’s entire General Fund revenue. This is creating an affordability challenge for all
Fairfax County residents, particularly those on fixed incomes and those who are already
struggling to make ends meet in a high-cost-of-living region.

Ongoing actions by staff to streamline, innovate, and identify savings have helped the
County curb costs and allowed the Board to shift resources to higher priorities. This has also helped to minimize operating cost increases in recent years across the County. The FY 2025 Budget included a decrease of $34.35 million and the elimination of 84/83.5 FTE positions, the latest example in what staff has been able to accomplish to rein in cost increases. However, it is clear that this is not sufficient to cover the cost of continuing to deliver high quality core County services and that we must look at available options beyond real estate taxes.

Furthermore, we continue to be challenged by chronic inadequate state support for schools,
as identified in the 2023 Joint Legislative Audit and Review Commission (JLARC) study
which found that the State uses a “complex and unreasonable funding formula” that results in the underfunding of schools by $1,900 per student when compared to the national average. FCPS estimates that if all JLARC recommendations were implemented, FCPS would have received an additional $568.7 million this year. The cost of supporting our schools continues to fall disproportionately on our local homeowners.

As we look for additional tools to diversify our tax base, we cannot leave any in the toolbox.
We, therefore, as the Chair and Vice Chairs of the Budget Committee, ask the County
Executive to come back to the Board at the September 17 Budget Committee meeting with
all options for revenue diversification, including the implementation of a meals tax.
Options for the meals tax should include: a range of 1-6% and subsequent revenue projections for each; comparisons with local meals taxes implemented in the region; the timeline and cost for implementation, including estimates for industry; and any restrictions on the use of revenue generated by the meals tax. Furthermore, we ask the County Executive to provide a draft community outreach strategy for potentially implementing the meals tax. As part of the timeline for implementation includes work with businesses, we expect restaurants and other businesses to be substantively included in the outreach process.