Lawsuit involving restaurants challenging Omaha, Nebraska's, 2.5% dining tax headed to state Supreme Court; plaintiffs claim city doesn't have authority to enact tax without referendum

Nevin Barich

OMAHA, Nebraska , December 2, 2011 (Associated Press) – Restaurants challenging the city of Omaha's 2.5 percent dining tax are taking their fight to the Nebraska Supreme Court.

The appeal comes from two Omaha restaurants and restaurant owner Anthony Fucinaro Jr. who sued to stop the tax, saying it amounts to a sales tax that the city does not have the authority to enact without a referendum. Even if the tax is found to be an occupation tax, the restaurants say it exceeds what state law allows.

In April, Douglas County District Judge Marlon Polk dismissed the lawsuit, upholding the tax.

The tax, which was imposed on restaurant, bar and catering bills, went into effect in October 2010 and has raised millions of dollars for the city.

An attorney for the restaurants, Justin Eichmann, argues that the lower court erred in not finding that the dining tax is an unauthorized sales tax because it leads to an increase in the actual amount of sales tax paid by customers.

"Although the city has opted to allow restaurants to choose whether to pay the (tax) itself or pass it on to its customers, a restaurant's financial realities, including tight profit margins, do not allow for such a choice and forces payment of the (tax) directly to the customer, just as if it were an increased local sales tax," Eichmann wrote in a brief submitted to the state's high court.

Thomas Mumgaard, deputy city attorney, countered that the restaurants' argument looks only at the bottom line and ignores that the dining tax does not change the 7 percent sales tax rate — the state's 5.5 percent sales tax plus the city of Omaha's 1.5 percent sales tax — collected by Omaha restaurants.

"Anthony's challenge to the occupation tax is mostly a matter of just not liking the outcome of the political battle waged as the City Council considered whether to exercise its authority to raise revenue through an occupation tax," Mumgaard wrote in his brief before the Nebraska Supreme Court.

The Nebraska Supreme Court will hear arguments in the case on Dec. 7.

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