NOTICE: IC § 6-8.1-3-3.5 and IC § 4-22-7-7 require the publication of this document in the Indiana Register. This document provides the general public with information about the Department's official position concerning a specific set of facts and issues. This document is effective as of its date of publication and remains in effect until the date it is superseded by the publication of another document in the Indiana Register.

I. County Withholding Tax–Imposition.

Authority: IC § 6-3-4-8; IC § 6-3-4-13; IC § 6-8.1-5-1; IC § 6-8.1-7-1; Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); I.R.C. § 3402; 45 IAC 3.1-1-97.

Taxpayer protests the assessment of county withholding tax on wages it paid to its employees for the 2010, 2011, and 2012 tax years.

II. County Withholding Tax–Statute of Limitations.

Authority: IC § 6-3-4-8; IC § 6-8.1-5-2; IC § 6-8.1-10-6; 45 IAC 3.1-1-101.

Taxpayer argues that part of the assessment for the 2010 tax year was outside of the statute of limitations.

Taxpayer is a corporation operating an Indiana business location. The Indiana Department of Revenue ("Department") conducted an audit review of Taxpayer's business records and withholding tax returns for the 2010, 2011, and 2012 tax years. Taxpayer withheld Indiana state tax from its employees, but failed to withhold county income taxes. As a result, the Department issued proposed assessments for the county tax and interest. Taxpayer protested the assessment. An administrative hearing was conducted, and this Letter of Findings results. Additional facts will be provided as necessary.

I. County Withholding Tax–Imposition.

All tax assessments are prima facie evidence that the Department's claim for the tax is valid; the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007).

The Department assessed Taxpayer for county income tax that it failed to withhold from its employees' paychecks. The Department determined the amount of tax by multiplying the employees' gross wages by the appropriate county rate to arrive at the audit assessment.

Taxpayer asserts that "it is not liable for the Assessment, or is liable only for the interest portion of the Assessment." Taxpayer maintains that when it fails to withhold the tax, the Department cannot make an assessment for the tax against Taxpayer. Taxpayer states that the Department must seek the tax from the individual taxpayers and can only make assessments for penalties and interest against Taxpayer.

IC § 6-3-4-8 provides, in part, as follows:

(Emphasis added).

Accordingly, IC § 6-3-4-8(a) specifically requires an employer to "withhold, collect, and pay over income tax on wages paid by such employer to such employee . . . [in] the amount prescribed in withholding instructions issued by the department." IC § 6-3-4-8(a)(1) specifically provides that the employer is "liable to the state of Indiana for the payment of the tax required to be deducted and withheld." (Emphasis added). Therefore, contrary to Taxpayer's assertion that the employer's liability is limited to the amount that it actually withheld plus penalties and interest, IC § 6-3-4-8 specifically provides that the employer is liable for the amount that it was required to withhold. These statutory requirements for the employer to withhold the amount prescribed in the Department's withholding instructions and for the employer to become liable for the amount it is required to withhold are restated in 45 IAC 3.1-1-97. "Employers who make payments of wages subject to the Adjusted Gross Income Tax Act, and who are required to withhold Federal taxes pursuant to the Internal Revenue Code are required to withhold from employees' wages Adjusted Gross and County Adjusted Gross Income Tax." Id. The regulation then goes on to state, "In the case of delinquency or nonpayment of withholding tax, the employer is liable for such tax, penalties, and interest." Id.

Alternatively, Taxpayer asks for a reduction in its withholding tax liability by the actual amount that its employees paid in the employees' respective individual income tax returns attributable to the employees' given county. Taxpayer states that the Department must look beyond the W-2s and look at the individual employee's tax return information because IC 6-8.1-5-1(b) requires the Department to make its assessments based upon the "best information available" to the Department.

In effect, Taxpayer is requesting that the Department perform individual income tax audits of each of its employees to determine if the tax that it was required to pay was paid by the individuals and then relieve Taxpayer of its responsibility for withholding county income tax if individual employees did in fact report and pay the tax. For the Department to do what the Taxpayer requests, the Department would have to schedule individual audits with each of Taxpayer's employees, request copies of the employee's federal tax returns and other records, and then provide this employee's information about how much of the income was reported with the tax paid to Indiana to Taxpayer. However, there is nothing in Indiana law which allows such treatment. Moreover, if the Department attempted to do as Taxpayer suggests, the Department would be violating the tax confidentiality requirements found in IC § 6-8.1-7-1(a) that prohibits the Department from sharing one taxpayer's information–i.e., the employee's tax information–with another taxpayer–i.e., the employer. Unlike in the S-corporation withholding statute where the legislature has given the Department express authority, in IC § 6-3-4-13(i), for the shareholder's tax information to be shared with the S-corporation and to relieve the S-corporation of its withholding tax liability when the adjusted gross income tax has been paid by the shareholder, the Indiana legislature has not provided this remedy for employers with withholding tax liabilities.

Additionally, Taxpayer cites to federal regulations and procedures for the remedy that it seeks under Indiana law. However, unlike the federal withholding tax statute, in I.R.C. § 3402(d), where the United States Congress has given the IRS the express authority to share the employee's information with the employer and to relieve the employer of its withholding tax liability when the adjusted gross income tax had been paid by the employee, the Indiana legislature has not provided this remedy for employers with withholding tax liabilities. Again, under Indiana law, an employer is required to withhold the taxes as prescribed, and is liable to the state of Indiana for the amount that it was required to withhold, plus penalties and interest. IC § 6-3-4-8.

For the reasons stated above, Taxpayer's protest is respectfully denied.

II. County Withholding Tax–Statute of Limitations.

Taxpayer argues that part of the assessment for the 2010 tax year was outside of the statute of limitations. Taxpayer asserts that, for the January 1, 2010, to August 31, 2010, tax periods, the Department is limited to the imposition of the $250 failure to file an information return penalty found in IC § 6-8.1-10-6.

IC § 6-8.1-10-6 provides:

However, this statute does not apply to Taxpayer's situation for two reasons. First, Taxpayer filed all of the returns in question. Thus, Taxpayer has not received an assessment based upon Taxpayer's failure to file a return. Taxpayer's assessments were based upon Taxpayer's failure to report and pay the correct amount of tax. Specifically, Taxpayer was audited and a tax deficiency was found by the Department. The Department determined that the amount that Taxpayer reported on its annual WH-3 withholding tax return underreported the amount of tax that Taxpayer was required to pay under IC § 6-3-4-8.

Second, the WH-3 return, in question, is not an "information return." Forms W-2 and Forms WH-18 withholding statements are examples of "information returns" that report information "with respect to an amount from which tax is required to be deducted and withheld." The Department requires the employer to provide an information return to a payee–i.e., the person to whom the employer is required to furnish a copy of the information set forth on an information return, but also requires the employer to file a copy of the information return that it provided to the payee with Department. The WH-3 return is the annual "reconciliation return" that the Department requires a withholding tax taxpayer to file pursuant to 45 IAC 3.1-1-101. The WH-3 return must be filed on an annual basis with the Department to report and pay the amount of withholding tax the taxpayer was required to withhold and pay to the Department under IC § 6-3-4-8 for a specific calendar year. See 45 IAC 3.1-1-101 (requiring taxpayers to file with the Department a yearly reconciliation return–i.e., Form WH-3 "Annual Withholding Reconciliation Tax Form"–to report the annual amount of tax that the taxpayer was required to pay as well as the required monthly and/or quarterly remittance returns–i.e., Form WH-1 "Indiana Withholding Tax Remittance Voucher"). The WH-3 return, as a reconciliation return, is a taxpayer's last chance to report the proper amount of withholding tax to the Department for the year and to pay and/or request a refund based upon the amount of withholding tax that the taxpayer reports as due for that year.

IC § 6-8.1-5-2(a) provides that:

The due date for the Form WH-3 reconciliation tax return for the 2010 tax year was February 29, 2011. Therefore, the three years statute of limitations from the due date of the WH-3 return was February 29, 2014. Since the Department's assessment was made on October 15, 2013, the assessment was properly made within the statute of limitations.

For the reasons stated above, Taxpayer's protest is respectfully denied.

Taxpayer's protest is denied, as discussed in Issue I and in Issue II.