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 This document is effective as of its date of publication and remains in effect until the date it is superseded by the publication of another document in the Indiana Register. The "Holding" section of this document is provided for the conveniences of the reader and is not part of the analysis contained in this Letter of Findings.

Federal law was controlling regarding the withholding tax requirements for employees that drove routes within Indiana but were residents of another state.

I. Withholding Tax–Nonresidents.

Authority: U.S. Const. art. VI, cl. 2; IC § 6-8.1-5-1; IC § 6-3-2-1; IC § 6-3-4-8; IC § 8-2.1-24-18; Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); 49 U.S.C. § 14503; 49 U.S.C. § 31132; 49 C.F.R. 390.21; 45 IAC 3.1-1-97.

Taxpayer protests the assessment of withholding taxes.

Taxpayer is a corporation that operates manufacturing and distribution centers in Indiana and other states. The Indiana Department of Revenue ("Department") audited Taxpayer for withholding taxes for the years 2010 through 2012; as a result of that audit the Department issued proposed assessments against Taxpayer for withholding taxes. Taxpayer protested the proposed assessments. An administrative hearing was conducted and this Letter of Findings results.

I. Withholding Tax–Nonresidents.

As a threshold issue, it is Taxpayer's responsibility to establish that the existing tax assessment is incorrect. As stated in IC § 6-8.1-5-1(c), "The notice of proposed assessment is prima facie evidence that the department's claim for the unpaid tax is valid. The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made." Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department's position is wrong. Further, "[W]hen [courts] examine a statute that an agency is 'charged with enforcing. . . [courts] defer to the agency's reasonable interpretation of [the] statute even over an equally reasonable interpretation by another party.'" Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014).

The Department's audit report states the following:

The audit report further states that "[w]ithholding agents, registered with the State of Indiana, are required to collect and remit Indiana adjusted gross income tax . . . pursuant to 45 IAC 3.1-1-97." That regulation, 45 IAC 3.1-1-97, states in relevant part that "[e]mployers 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 (USC Title 26), are required to withhold from employees' wages Adjusted Gross and County Adjusted Gross Income Tax." It should also be noted that IC § 6-3-4-8(a) states in relevant part that "every employer making payments of wages subject to tax under this article, regardless of the place where such payment is made, who is required under the provisions of the Internal Revenue Code to withhold, collect, and pay over income tax on wages paid by such employer to such employee, shall . . . deduct and retain therefrom the amount prescribed in withholding instructions issued by the department."

Taxpayer describes itself, in part, as a company that employs "Illinois resident truck drivers" who "operate a fleet of delivery vehicles located at the [northern Indiana distribution center]." Taxpayer states that the "straight trucks and route trucks have a gross vehicle weight of over 10,001 pounds" and that the "trucks depart the [northern Indiana distribution center] each day loaded with [food] products and make multiple customer deliveries primarily in Illinois along set routes before returning to the [northern Indiana distribution center]." Taxpayer further states that the "Illinois Drivers were residents of Illinois" and that Taxpayer "withheld Illinois tax on wage payments to the Illinois Drivers." Thus Taxpayer's position is that it correctly withheld Illinois tax on the "Illinois Drivers," and that there is a "federal statute that mandates single-state withholding in Illinois, the Illinois Drivers state of residence."

The federal law relied upon by Taxpayer is 49 U.S.C. § 14503. That law states:

49 U.S.C. § 31132, in turn, states:

Taxpayer states that it is "a private motor carrier under federal law." Taxpayer states that "as the auditor assessed Indiana withholding tax on wage payments to the Illinois Drivers, there is no dispute [Taxpayer] employs the Illinois Drivers under Indiana law." Taxpayer argues that the drivers in question meet the criteria found in 49 U.S.C. § 31132 (referred to by Taxpayer as "the Amtrak Act"). Citing to § 31132(2), Taxpayer states:

Taxpayer further notes that the "Illinois Drivers operate straight trucks and route trucks filled with [] products, which are commercial motor vehicles under federal law." Citing to § 31132(1), Taxpayer states "heavy straight trucks and route trucks" meet the federal requirements as "commercial motor vehicle[s]."

Taxpayer does not own the trucks that are used. However, Taxpayer states that "[b]oth federal and state laws authorize" Taxpayer "to have its employee drivers operate commercial motor vehicles placarded with a USDOT number issued to another entity." In support of its argument, Taxpayer states:

IC § 8-2.1-24-18(a) states in relevant part:

And 49 C.F.R. 390.21 states:

Regarding Taxpayer's protest, under federal preemption the federal law is controlling (see Article VI of the United States Constitution for the Supremacy Clause). Thus Taxpayer is sustained, subject to Audit verification of the information provided by Taxpayer (e.g., the routes driven, payroll reports, mileage reports, that Taxpayer's rental agreements meet the requirements of 49 C.F.R. 390.21, etc.).

Taxpayer states that "[i]n reviewing the audit adjustments involving other Illinois resident employees, [Taxpayer] determined certain adjustments are necessary in a couple of audit years[.]" The three adjustments, per Taxpayer, are the following:

• For 2010, an employee who "is an Indiana resident and Indiana tax was withheld on his wage payments per IRS Form W-2" and that "the audit adjustment of $49,801.22 for additional wages subject to Indiana tax should be eliminated."

• For 2011, Taxpayer states that an employee's "wage amount is $6,296.84 and Indiana tax was withheld" on an employee's "wage payments per IRS Form W-2" and that "the audit adjustment of $18,049.25 for additional wages subject to Indiana tax should be eliminated."

• And for another employee involving 2011, Taxpayer states that the "wage amount is $60,926.14 and Illinois tax was withheld on his wage payments per the IRS Form W-2" and that Taxpayer "contend[s] none of the wages are subject to Indiana tax withholding pursuant to the Amtrak Act, if for some reason the Department disagrees the audit adjustment of $84,919.70 for additional wages subject to Indiana tax should be reduced to $60,926.14

The Audit Division is requested to review the documentation provided by Taxpayer regarding these three issues, and make adjustments where warranted.

Lastly, Taxpayer states it reviewed its payroll records and found that for some employees "Illinois tax was incorrectly withheld on a few Illinois residents performing non-driving duties" and that Taxpayer "agrees certain Illinois residents located at the [Indiana] DC and listed in the audit report with additional wages subject to Indiana state tax are non-residents subject to Indiana withholding tax." In other words, Taxpayer concedes that these Illinois residents were employees that were non-drivers and performing work in Indiana, and thus should have had Indiana withholding tax withheld. The Audit Division is requested to make that adjustment as well.

Taxpayer's protest is sustained subject to Audit verification and review of the information provided by Taxpayer (e.g., the routes driven, payroll reports, mileage reports, that Taxpayer's rental agreements meet the requirements of 49 C.F.R. 390.21, etc.); the Audit Division will also make adjustments on the issue conceded by Taxpayer.