State working to help restaurant customers recoup nearly $300K in taxes mistakenly sent to Zionsville

Ten Whitestown restaurants have been collecting Zionsville’s 1 percent food and beverage tax, leading to Zionsville receiving nearly $300,000 that should have never been collected from taxpayers.

Whitestown Town Manager Dax Norton said he received the totals from officials at the Indiana Dept. of Revenue, which has been investigating the issue in recent months.

All of the restaurants except two are in the 46077 ZIP code, which means they have Zionsville addresses even though they are in Whitestown. Officials have said they believe the town boundaries not matching up with the ZIP code boundaries is primarily what led to the confusion.

Circkle K/Subway and LA Café have a Whitestown ZIP code and address, and officials are still investigating how they ended up charging Zionsville’s tax, Norton said.

El Rodeo and Flap Jacks, the two restaurants that were open when the tax went into effect in 2008, have been charging it since then, Norton said. Others, like Caplinger’s Fresh Catch, have only been open a few months.

Zionsville will be required to return the tax money. Town Attorney Heather Willey said the town will likely repay the funds through future food and beverage tax collections. It will likely go into a special account and be refunded during a certain time period to customers who can provide receipts showing they paid the tax. Officials are still determining exactly how that process will work.

Food and beverage revenue varies from year to year, but Willey said it has generally been increasing and totals about $350,000 per year. Its uses include town hall loan payments, façade improvement grants and charitable organizations. It also provides support to zWORKS, the Zionsville Chamber of Commerce and Boone EDC.

Willey said food and beverage taxes are collected by the state and then distributed in a lump sum to municipalities, which is one reason Zionsville officials didn’t realize the town was receiving tax money it shouldn’t have.

Once they became aware of the problem, Willey said town officials contacted the state to request a list of all businesses collecting Zionsville’s food and beverage tax. They combed through it line by line to determine if an error had been made. They learned that most of the restaurants shouldn’t have been charging the tax at all, while two – Subway and Which Wich – should have collected it for Boone County, not Zionsville, Willey said.

Norton said as of last week a couple of the restaurants were still charging the tax. Willey said that IDOR will soon notify all affected restaurant owners and order them to stop charging it if they haven’t already.

This type of mix-up is not unique to Whitestown and Zionsville. Willey said it’s not uncommon for food and beverage taxes to be sent to the wrong place when municipality and ZIP code boundaries don’t line up.

Erin Murphy, a spokesperson for the City of Westfield, said the city has experienced similar issues along 146th Street. Businesses on the north side of the street are in Westfield but have a Carmel address. Both cities charge a 1 percent tax, so funds can be moved to fix the problem without affecting taxpayers.

“The City of Westfield has done an audit and found that we are losing food and beverage tax to Carmel along the 146th St. corridor,” Murphy stated in an email. “Westfield works with the Dept. of Revenue to evaluate the report and then the Dept. of Revenue collects the lost dollars for Westfield.”

Willey said that the issue in Whitestown and Zionsville has spurred DOR officials to review the system as a whole and implement changes to ensure taxes go to the right place.