Stacked Local Taxes Make Virginia Less Affordable
by Derrick Max
— Virginia’s restaurant and lodging sector is still in a fragile post-COVID recovery, yet local governments across the Commonwealth are piling on new and higher taxes that make affordability worse for families and survival harder for small businesses.
A new statewide analysis of meals, lodging, and related sales taxes across all 133 Virginia localities by the Virginia Restaurant, Lodging & Travel Association (VRLTA) shows just how uneven and burdensome these taxes have become. The findings should serve as a warning to policymakers who claim to prioritize affordability while repeatedly targeting the same vulnerable industries.
According to the 2025 Meals & Lodging Tax Study, Virginia’s hospitality tax landscape is now “highly fragmented,” with wide variation by region and governance structure (cities tax more than counties). There is also a clear trend to increase rates — putting concentrated pressure on restaurants and hotels. According to the study, meals taxes reach as high as 10 percent in some jurisdictions, effective lodging taxes climb to 15 percent, and nearly one-third of localities exceed the statewide 5.3 percent sales tax rate through these tax add-ons. Just as concerning, roughly 43 percent of Virginia localities have raised at least one of these taxes since 2016.
That is not affordability, it is instability.
And it is happening in an industry already under strain. The report documents rising labor costs (with minimum wage about to go even higher), higher food and materials prices (tariffs and regulations), utilities (VCEA), rent, credit card fees, and taxes, all colliding with price-sensitive consumers who are dining out less and/or choosing cheaper options. Some long-standing establishments are already closing rather than operating at a loss. This is exactly the wrong time to add more taxes.
The Economics Politicians Prefer to Ignore
Meals and lodging taxes fall on “discretionary spending,” which makes them especially sensitive to price increases. When government widens the gap between what customers pay and what businesses receive, the results are predictable. Demand softens. Visits drop. Average ticket totals shrink. Promotions increase. Margins shrink.
Small businesses bear the brunt. Large chains can spread compliance and pricing adjustments across any number of locations. Independent restaurants and small hotels cannot. This fragmentation is a hidden compliance cost of varying locality taxes.
Workers are hit with reduced hours, slower hiring, and lower tip income. Economists call this the “incidence” of the tax, and it rarely lands where lawmakers say or hope it will.
The “Export the Tax” Myth
Local officials often justify meals and lodging taxes by claiming they are paid mostly by out of jurisdiction customers (tourists). The data suggests otherwise.
Meals taxes hit every resident who buys prepared food: families grabbing takeout, seniors dining out, local business meetings, and community events. Lodging taxes increasingly affect in-state travel, youth sports tournaments, and family visits. The study shows higher taxes are especially common in city jurisdictions and coastal regions, places that depend heavily on hospitality employment. The more a region relies on the industry, the more often it becomes the tax target.
Now Add the Proposed Additional 1% Sales Tax for Schools
Compounding this cost pressure is pending legislation such as HB334, which would authorize an additional one-percent local sales tax in participating jurisdictions. While described as a school revenue tool, in practice this tax would stack directly on top of restaurant and lodging purchases, further increasing the final price paid by customers who are already facing combined meals, sales, and occupancy taxes that reach double-digit levels in many Virginia localities.
For a sector built on discretionary spending and thin margins, even a one-point increase matters. Basic economic analysis shows that higher transaction taxes reduce purchase frequency, shrink average ticket amounts, and shift consumer behavior toward lower-tax alternatives, including eating at home or going to lower tax jurisdictions for spending. That translates into slower revenue growth for small hospitality businesses, reduced tip income for workers, and weaker spillover activity for nearby retailers and entertainment venues. What looks modest on paper functions as a broader drag on local commercial economies.
If Affordability Matters, Tax Less
Virginia’s new governor, Abigail Spanberger, has rightly emphasized “affordability” as a central governing priority. But every added percentage point in meals, lodging, and stacked sales taxes moves prices in the opposite direction, making everyday dining, travel, and local commerce less affordable for families while weakening the very small businesses that anchor community economies. Affordability cannot be achieved by selectively taxing politically convenient industries and pretending the costs disappear. Virginia’s hospitality sector is not a bottomless well. It is a network of small employers, local investors, and community anchors – operated by hard working employees who bear much of the burden of these taxes. Taxing more in the name of affordability is not just contradictory, it is counterproductive — and this new data from the VRLTA now makes that unmistakably clear.
Derrick Max is the President & CEO of the Thomas Jefferson Institute for Public Policy and may be reached at dmax@thomasjeffersoninst.org..
