By Sarah Rutherford, Reporter-Times
srutherford@reportert.com
Nothing in life is certain but death and taxes. However, that's not entirely true for residents of Morgan County. With a 1 percent food and beverage tax being enforced only within Mooresville and Martinsville town limits, confusion reigns and residents aren't so certain about what they should be paying.
The city of Martinsville followed in Mooresville's footsteps in May of this year when the council unanimously voted to adopt the tax. Martinsville restaurants began charging the tax on July 1. Mooresville has been collecting the tax for 15 years. Marion County adopted a food and beverage tax in 1981 of 1 percent and that rate increased to 2 percent in July, when they voted to support the Indianapolis Colts stadium tax. Hendricks County also voted to support the stadium tax and collect a total of 1 percent. This is in addition to the standard 6 percent sales tax.
And this is where the confusion begins. Many are asking about where district lines are drawn, who is supposed to collect the tax and what amount should be collected.
According to the Indiana Department of Revenue Commissioner's Directive, the tax applies to "any transaction in which food or beverage is furnished, prepared or served by a retail merchant for consumption at a location on or equipment provided by the retail merchant in a county or municipality that adopts the tax."
When a tax is adopted, the Department of Revenue identifies all businesses that are subject to the tax. In Mooresville, there are 64 businesses collecting the tax and in Martinsville there are 97.
The restaurants that qualify to collect are notified by the Department of Revenue. A certified copy of the signed ordinance goes to the department and it falls on them to inform restaurant owners whose businesses are within the city limits.
Municipalities that elect to charge the tax decide who collects it. In the case of Mooresville and Martinsville, the Department of Revenue collects the tax. The filing of the return is due 30 days after the month in which the transaction occurs.
Enforcing the tax
It is then up to the administrative branch of the Department of Revenue to enforce the tax. According to Stephanie McFarland, Department of Revenue director of public affairs, mistakenly collecting too much tax can be rectified in two ways.
First, the merchant or restaurant can provide a refund directly to the taxpayer or a taxpayer may file a refund with the state. A merchant may do this without penalty.
"There are no charges or penalties if it is not fraud. If there is fraud, there is criminal liability and there are charges for that," McFarland said.
In the case that a restaurant is mistakenly collecting too little, penalties are charged. Insufficient collections are found when processing annual taxes. If a shortage is found, the department does an audit in which the issues are addressed. The restaurant is charged a 10 percent penalty and interest.
If amounts submitted are still incorrect, the department follows up with letters, phone calls and in-person visits. If and when a business fails to remit tax monies, the staging process begins with the department. They first bill the business and if that is not paid, they bill the base amount plus penalties and interest. If the business still does not comply, then the staging process continues. The steps include notifying the clerk's office, the sheriff's department and an attorney.
In the case that a business stops filing returns, the department looks at past returns and issues a BIA, which stands for best information available. The restaurant is billed for what the department thinks they owe, and the staging process begins.
Local citings
Although the department couldn't provide a detailed list of those restaurants that have not submitted their part of the tax, the Martinsville common council recently turned its attention to the fact that Forkey's Restaurant had not yet submitted the funds and was about to be cited. The citing was rescinded after owner Forrest Brummett told the state that they have been collecting the tax. Brummett said he had not received forms or information for submitting the money.
"We've been going by the law and have the money in the bank and are waiting to give it to them," Brummett said. He said that he is in the midst of clearing up the matter, and State Rep. Ralph Foley is working to obtain the forms.
Brummett believes he is not the only business owner who has not received the forms. Brummett said that there may be another restaurant in town that is dealing with the same circumstances, although he would not reveal which one.
The department of revenue wouldn't speak about specific violations, but they said that as a department, they took responsibility for filling out and submitting all registration paperwork for each of the businesses required to collect.
The department said that several notices have been sent to the restaurants in Martinsville notifying them of the tax and explaining procedures for collecting and submitting the monies.
All that is left for business owners to do is to fill out the coupons and return the money collected.
Where the money goes
Once the money is collected, in the cases of Mooresville and Martinsville, all of the money is redistributed to the municipality that collects it.
In the case of Hendricks County and Marion County, only .5 percent is sent back to the municipality, with the rest going toward the new Colts stadium. It is written into local ordinance how the money can be spent.
For Mooresville, Ordinance No. 8-1990 states that the money can be applied to: financing, construction, operation or maintenance of: sanitary sewers or wastewater treatment facilities; park or recreation facilities; drainage or flood control facilities; and water treatment, storage or distribution facilities.
At this year's state of the town address, town council president Tom Warthen highlighted projects paid for with the $305,000 raised in 2005, including the annexation of two additions, a sewer project, a wastewater project and park improvements.
"It proved that food and beverage can be used for positive things," Warthen said during the address. The Martinsville ordinance, No. 2005-1559, states five ways in which the money collected can be spent. They are: renovating the City Hall, construction of new police or fire stations, or both; improving the sanitary sewer or waste water treatment facilities, or both; improving the city's stormwater drainage systems, and other projects involving the city's water system or protecting the city's well fields as determined by the Common Council of the City of Martinsville.
During the first month of collecting the tax, Martinsville only received $2,500. However, over the next couple of months the total has reached almost $30,000. Martinsville expects to pull in about $300,000 a year from the tax.