Merrillville's Food and Beverage Tax Explained
With the new year approaching, many might have already started considering their resolutions for 2024. As an elected official, I also have my mind on 2024, and financial growth is always among my goals for Merrillville. A food and beverage tax is on the table for the Town, and at 1% of prepared food and drink sales, it equates to a penny on every dollar spent.
The Republican-controlled State General Assembly approved House Enrolled Act 1454, a behemoth, 235-page tax measure that included state authorization for Merrillville to enact a local food and beverage tax. The legislation permits Merrillville to impose a food and beverage tax of up to 1% on all dine-in and take-home prepared food and drinks sold at Merrillville eateries, bars, and similar outlets. The tax legislation was cosponsored by State Sen. Lonnie Randolph and was approved 76-20 in the House and 35-15 by the State Senate.
The town could then have funding to pay for an 18,000-square-foot expansion of the indoor recreational amenities at the Dean and Barbara White Community Center, particularly two more basketball courts and 4 additional volleyball courts for youth and adult tournaments and other sporting events designed to attract out-of-town visitors increasing tourism to Merrillville, one of the goals of the tax. Many other ideas are listed later in this document.
It is hard to imagine that a penny can purchase much in today’s economy. Even “penny candy” costs more than a penny these days! A penny is our lowest U.S. monetary denominator. One cent is one-hundredth of a dollar, or in terms of percentages, it’s just 1% of a dollar.
But imagine if you had 100 pennies. Now that adds up to a dollar. That’s what savings was all about as I recall from my parents. Save a little each paycheck and it will someday add up to a great amount of savings for you. It also makes saving less painful if the amounts are very low and extremely affordable. So, each paycheck I always put ‘a little’ aside. Then one day I realized that I had enough to purchase my first $500 car! Yep, it was a used car that I purchased from my cousin. It was not luxury, but that 1966 Oldsmobile Delta 88 got me around town with no problem.
The experience taught me the value of a penny, and of money in general, and that without it, you will be very limited with what you can do, or purchase. That brings me to the topic of our town. Unlike Lake County’s older communities like Whiting, East Chicago, Hammond, Gary, and Lake Station, the county’s oldest city, some of the southern cities and towns are much younger. Merrillville and Winfield are two of the youngest in the county. What that means is that much older cities have been able to grow their budgets each year and keep up with the growth of their communities. Younger towns, like Merrillville incorporated in the early 70’s when watchful state legislators became mindful of tax rate growths and forced limits on tax levy rates. This hurt a community like Merrillville which began with very limited and conservative services during its incorporation. The frozen tax levy did not allow Merrillville to increase property taxes to handle the unprecedented growth that it has experienced for the past half-century. Population growth causes the need for additional town services, added police and fire protection, and all the expenses that come along with providing those services.
Merrillville has limited options as it relates to raising funds for services, parks, police, fire, and other services. The idea of the food and beverage tax was appealing when the idea of trying to present it to state lawmakers was discussed. Merrillville has in the past discussed this issue but was not, at that time, able to get the endorsement from State lawmakers. Today is different as it was already done in several Indiana cities and towns (33 in total). These cities and towns levy a food and beverage tax: a 1% sales duty levied on businesses that sell or help sell prepared food and drink. In some localities, both the municipality and county have one, stacking up to 2%.
State lawmakers agreed with our request and granted Merrillville and the City of Jasper the approval to have a food and beverage tax allowed in .25% increments (twenty-five hundredths of a percent, up to 1% in total. The Senate Bill and House Bill were approved.
The Actual Law
IC 6-9-54.5-4 Taxable transactions; exemption
Sec. 4. (a) Except as provided in subsection (c), a tax imposed under section 3 of this chapter applies to a transaction in which food or beverage is furnished, prepared, or served:
(1) for consumption at a location or on equipment provided by a retail merchant;
(2) in the town; and
(3) by a retail merchant for consideration.
(b) Transactions described in subsection (a)(1) include transactions in which food or beverage is:
(1) served by a retail merchant off the merchant’s premises;
(2) sold in a heated state or heated by a retail merchant;
(3) made of two (2) or more food ingredients, mixed or combined by a retail merchant for sale as a single item (other than food that is only cut, repackaged, or pasteurized by the seller, and eggs, fish, meat, poultry, and foods containing these raw animal foods requiring cooking by the consumer as recommended by the federal Food and Drug Administration in chapter 3, subpart 3-401.11 of its Food Code so as to prevent foodborne illnesses); or
(4) sold with eating utensils provided by a retail merchant, including plates, knives, forks, spoons, glasses, cups, napkins, or straws (for purposes of this subdivision, a plate does not include a container or package used to transport food).
(c) The town food and beverage tax does not apply to the furnishing, preparing, or serving of a food or beverage in a transaction that is exempt, or to the extent the transaction is exempt, from the state gross retail tax imposed by IC 6-2.5.
As added by P.L.236-2023, SEC.119.
IC 6-9-54.5-5 Rate
Sec. 5. The town food and beverage tax rate:
(1) must be imposed in an increment of twenty-five hundredths percent (0.25%); and
(2) may not exceed one percent (1%);
of the gross retail income received by the merchant from the food or beverage transaction described in section 4 of this chapter. For purposes of this chapter, the gross retail income received by the retail merchant from a transaction does not include the amount of tax imposed on the transaction under IC 6-2.5.
As added by P.L.236-2023, SEC.119.
Sec. 6. A tax imposed under this chapter is imposed, paid, and collected in the same manner that the state gross retail tax is imposed, paid, and collected under IC 6-2.5. However, the return to be filed with the payment of the tax imposed under this chapter may be made on a separate return or may be combined with the return filed for the payment of the state gross retail tax, as prescribed by the Department of State Revenue.
As added by P.L.236-2023, SEC.119.Sec. 7. The amounts received from the tax imposed under this chapter shall be paid monthly by the treasurer of state to the town fiscal officer upon warrants issued by the auditor of state.
As added by P.L.236-2023, SEC.119.
Sec. 8. (a) If a tax is imposed under section 3 of this chapter by the town, the town fiscal officer shall establish a food and beverage tax receipts fund.
(b) The town fiscal officer shall deposit in the fund all amounts received under this chapter.
(c) Money earned from the investment of money in the fund becomes a part of the fund.
As added by P.L.236-2023, SEC.119.
Sec. 9. Money in the food and beverage tax receipts fund must be used by the town only for the following purposes:
(1) Park and recreation purposes, including the purchase of land for park and recreation purposes.
(2) Tourism-related purposes or facilities, including the purchase of land for tourism-related purposes.
(3) The pledge of money under IC 5-1-14-4 for bonds, leases, or other obligations incurred for a purpose described in subdivisions (1) and (2).
Revenue derived from the imposition of a tax under this chapter may be treated by the town as additional revenue for the purpose of fixing its budget for the budget year during which the revenues are to be distributed to the town.
As added by P.L.236-2023, SEC.119.
IC 6-9-54.5-10 Covenant
Sec. 10. With respect to obligations for which a pledge has been made under section 9 of this chapter, the general assembly covenants with the holders of the obligations that this chapter will not be repealed or amended in a manner that will adversely affect the imposition or collection of the tax imposed under this chapter if the payment of any of the obligations is outstanding.
As added by P.L.236-2023, SEC.119.
IC 6-9-54.5-11 Expiration
Sec. 11. (a) If the town imposes the tax authorized by this chapter, the tax terminates on July 1, 2045.
(b) This chapter expires July 1, 2045.
End of new law verbiage
Like a Sales Tax.
Food and beverage taxes are like a sales tax. It is “imposed, paid and collected in the same manner as the sales tax,” and food that is exempt from the state sales tax must also be exempt from the food and beverage tax. However, retailers must use different returns for sales tax and the food and beverage tax.
When Merrillville decided to seek permission from the state to enact a local food and beverage tax it was not done without much discussion. The town’s park department has always been a small program but now with our population growth residents are seeking more and more ways to keep active and in good health. Our neighborhood parks all need updates and modern equipment, but we have a very limited budget to support the needed upgrades. Also of concern in town is the lack of friendliness toward pedestrians. With a booming business district, Merrillville lacks the needed infrastructure to allow visitors to walk in between businesses like local restaurants, bars, shopping, and other tourist-type attractions. Sidewalks, including crosswalks, streetlights to light the way, and proper signage to guide visitors around town are sorely needed. A food and beverage tax can provide funding to allow for these improvements
State lawmakers limited the use of the tax to these two main categories, Parks and Recreation, and Economic Development. This allows the council to keep focused and use the tax to benefit the same establishments that are collecting the tax for us to use.
Different than a bond.
When a city or town bonds for improvements, the entire residency and business community pay for that bond over the next several years, at times even 20 or 30 years, or until the bond is paid back. Some residents may be paying for a service that they may never use.
The Food and Beverage Tax will have only those who are enjoying our restaurants and other prepared food providers, pay into a fund that the Town can use for improvements to our Parks and Recreational facilities, even build new ones, as well as to enhance and encourage the town’s economic development.
What will be done with the revenue?
The Town Council will be devising a plan as to how to use the revenue. Initial ideas include the following ideas:
Parks and Recreation
Revamp existing neighborhood parks with modern equipment and upgrades.
Build new neighborhood parks in areas where no park is available for residents.
Build a bandstand-type park for outdoor concerts and other shows that can be performed.
Expand the Dean and Barbara White Community Center adding 2 basketball that would convert into 4 volleyball courts so regional tournaments can be hosted at the facility.
Expand programs at the community center.
Economic Development
Add sidewalks utilizing ideas as presented by the Comprehensive Plan currently underway which will “connect” our community for residents and tourism.
Add signalized crosswalks to provide safe pedestrian and bicycle passage throughout town to again “connect” our community and allow access to commerce and increase tourism.
Add decorative street lighting and welcoming signage to entrance points in town.
Identify and build a new ‘town square’ type downtown area to give Merrillville an identity that was never accomplished upon becoming a town over 50 years ago.
Build a splash pad for children to enjoy.
Establish the recommendations that we expect to receive from resident feedback from the Merrillville Momentum Comprehensive Plan due for completion in early 2024.
There are many benefits for the town if additional funding was available each year coming from a new funding source that is not available to us today.
Examples of what it may cost you…
For example, if a bucket of chicken costs $15.00 and the food and beverage tax is in place, it would cost $15.15, or a penny (1%) on each dollar spent.
If you are dining out in a local restaurant and your total tab is $10.00, it would cost $10.10 if the tax was in place. Again, only a penny on each dollar spent. If you have a larger party spending $30.00, then your dinner tab would be $30.30.
A couple of beers at a local bar may cost you $6.00. With the tax in place, your new cost would be $6.06.
As you can see, the impact of your total purchases is not very large, but the impact on many food and beverage tabs would add up to a substantial amount for the town. An estimated $1.8M per year! That equates to about 20% of our annual Merrillville general fund budget!
What is NOT taxed…
Groceries, for the most part. Most groceries are not subject to the excise tax. Only items purchased that are prepared like from a restaurant, or a hot deli foods department in a grocery store and are sold as ready-to-eat food products would be subject to the Food and Beverage Tax. Taxable examples include foods like fried chicken, fried or prepared fish, or other hot food items sold at the deli.
Non-perishable items like cleaning products, laundry soaps, household items, or furniture would not be part of the food and beverage tax. Electronics, computers, TVs, or other entertainment devices are not subject to the tax, nor are vehicles of any kind.
Packaged alcohol like beer, wine, or liquor is not taxed unless served in a glass at a restaurant, bar, or lounge in a ready-to-consume state. Once served, it is then considered a prepared product and would be taxed.
The Power of the Food and Beverage Tax…
Visitors, not residents will pay a large portion.
It is believed that non-residents or visitors to our community will be providing much of the revenue since Merrillville’s population explodes each day to well over 100,000 people, although our residential population is (according to the last census) 36,400 residents. Travelers, visitors, workers, and others who may not live here will be contributing to the estimated $1.8M in annual revenue that the tax is believed will generate. Those funds can provide a tremendous benefit to the community.
Living in Merrillville with an interstate highway and a state highway running through it can be both a blessing and a curse. Merrillville is blessed having Interstate 65 which offers a quick way to get north or south as well as US Route 30 which is a major east/west corridor that many of us use, some daily.
But there can also be a downside: Visitors also require services from the town. Services that homeowners pay for through their property taxes. Business district roads need to be snow plowed just like neighborhood streets. Hotels call the police from time to time for service which is again paid for by property taxes. Business district roads are town roads and need repair and repaving more than a neighborhood street which typically has less traffic than a busy business district area or the surrounding streets in or near a business district.
These services take funding away from the general fund of the town. Police, Fire, Street Department, and EMS services are all paid for from town funds. The food and beverage tax will allow these visitors to also pitch in to help the town by paying their share when they use our restaurants, bars, or lounges in Merrillville. When many pitch in it can make a huge impact in town to enhance the quality of life for our residents who live here year-round. When many contribute with additional funding, we can use it for the betterment of our community like building more parks, adding sidewalks, or expanding recreational areas for the health and benefit of our residents. These amenity improvements naturally and importantly lead to increases in values of the property values of homes in our town.
It’s not a new idea…
Thirty-three (33) Indiana municipalities or counties have enacted a food & beverage tax. The City of Jasper’s tax will not begin until January of 2024 and was approved along with Merrillville’s in the House Enrolled Act 1454. They merged both Merrillville and Jasper into one bill since we both asked for approval at the same time at the beginning of 2023.
Allen County
Avon
Attica
Boone County
Brownsburg
Carmel
Cloverdale
Columbia City
Danville
Delaware County
Fishers
Greenwood
Hamilton County
Hancock County
Henry County
Johnson County
Jasper (1/1/24)
Lebanon
Madison County
Marion County
Martinsville
Monroe County
Mooresville
Orange County Hotel
Plainfield
Rockville
Shelby County
Shipshewana
Vanderburgh
Vigo County
Westfield
Whitestown
Zionville
Typically asked questions…
Will I have to pay 1% on my gratuity or tip that I leave too? – NO, like a sales tax, the food and beverage tax will be added only to your total restaurant bill for the food and/or beverages that you purchased.
Will all the food at the grocery store be taxed? – NO, only prepared foods like hot foods from the Deli that are ready to eat would be subject to the food and beverage tax.
Will the tax go on forever? – NO, under the statute the food and beverage tax is set to expire on July 1, 2045. If the Town wanted to extend the tax it would need to seek new approval from state legislators. The Town could also expire the tax at any time even before the deadline date.
Why wasn’t this on a referendum for voters to decide? – The food and beverage tax is an allowable tool for municipalities and counties, but the imposition of taxes is controlled or directed by your state lawmakers. The State Legislature is the government body that has the authority to approve a new tax. It is not required to be approved by voters in a municipality.
Who will make sure that our town is spending the revenue correctly? – As with all other Town spending, the State Board of Accounts will monitor the use of the Food and Beverage Tax Revenue. The town will be required to track the revenues and expenditures.
Can I make suggestions of where the funding is spent in our town? – Absolutely. If the ideas fall within the restricted uses of the revenue the town would love to hear your ideas about making our parks and recreational areas better, as well as ideas on increasing our economic development efforts in Merrillville.
How will a food and beverage provider business set up the tax collection process once the Town approves this? – The business’s financial system should allow the additional tax to be added separately to the bill and collected at the time of customer payment. A monthly total should then be available in the system, just as it currently tallies sales tax. This Food & Beverage Tax amount is then reported to the State when the Sales Tax is reported and paid to the State in the same manner.
Will my meals delivered from Meals on Wheels of NW Indiana be taxed? NO, Meals on Wheels of Northwest Indiana is a non-profit organization, and their services would not be taxed through this program.
When will the Town get the excise tax revenue? – Monthly. The State of Indiana will send revenue collected for the town monthly allowing the town to use the funds for the allowable uses as described in this document.
Schedule for adoption consideration
December 20, 2023, at 4:30 p.m. – The town will have a special Town Council meeting with this topic as the only one on the agenda. The meeting will also allow for public comment about this issue. The actual town ordinance would be on the agenda and read on first reading. It takes 2 readings of town ordinances to be approved.
December 26, 2023, at 6:30 p.m. – The town will consider on 2nd reading (if it is passed on the first reading on December 20th) at the regularly scheduled Town Council meeting. As with all 2nd reading ordinances, public comment will be offered before the vote on the ordinance is done.
If all is passed, the Food and Beverage Tax would become effective on January 1, 2024.
I’ll add information to this post as this process progresses. Please feel free to reach out with questions or comments. Email: RickBellaWard5@gmail.com
-Rick Bella, Town Council President