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Lawmakers Consider Loosening Restaurant Tax Rules

Northeast Indiana Regional Partnership

Legislators are debating whether local governments should have blanket authority to impose food and beverage taxes.

When cities and counties want to tax restaurant meals to raise money for a special project, they have to get legislative approval. Angola Mayor Richard Hickman says especially with property tax caps and the abolition of the inventory tax, cash-strapped local governments shouldn't need permission to find a new source of money.

Restaurant and Lodging Association president Patrick Tamm says it's one thing to use restaurants to finance projects like Lucas Oil Stadium, which bring in additional business. But he argues letting cities use restaurant checks for operating expenses will damage restaurant profits.

Tamm says food and beverage taxes are regressive and shouldn’t be used as an automatic pot of money for local governments.

“Most of the existing family meals taxes dedicate the revenue, in ways, have some hope of assisting the businesses and their employees being harmed by bringing more customers to the community,” Tamm says. “This is not the case, as cities and towns simply want the tax dollars to be used for the general operating cost.”

Association of Indiana Counties spokesman Ryan Hoff also points to a similar tax used to build Lucas Oil Stadium, which funneled half of the money to the stadium project and let counties keep the other half.

“This could be, at minimum, an example of an option available to all counties to work cooperatively together for a regional project,” Hoff says.

Senate Tax and Fiscal Policy Chairman Brandt Hershman (R-Buck Creek) questions whether a blanket food-and-beverage taxing authority would create an issue of taxation without representation, since Hoosiers driving to a restaurant in another county would be paying a tax imposed by officials they couldn't vote for. But he also challenged Tamm's predictions of economic harm -- he notes a 2-percent tax on a $30 tab would add just 60 cents to the bill.

Thirteen counties and six cities and towns tack on an extra restaurant tax on top of sales tax.