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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

For purposes of the Indiana individual income tax, Individual was required to file a 2011 Indiana individual income tax return because Individual was an Indiana resident. Individual worked for a Company where Indiana was the payee State on Individual's W-2. Although Individual worked in China in 2011, he was on a temporary work assignment, and never intended to live in China after the work assignment ended. Where Individual maintained a storage facility in Indiana, retained and renewed an Indiana Driver's License, and used the employer's Indiana address as the location to forward his mail, Individual was an Indiana resident who was required to file a 2011 Indiana individual income tax return.

I. Indiana Individual Income Tax - Residency-Domicile.

Authority: IC § 6-3-1-3.5; IC § 6-3-1-12; IC § 6-3-1-13; IC § 6-3-2-1; IC § 6-3-2-2; IC § 6-8.1-5-1; Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Indiana Dep't. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2012); Croop v. Walton, 157 N.E. 275 (Ind. 1927); State Election Bd. v. Bayh, 521 N.E.2d 1313 (Ind. 1988). 45 IAC 3.1-1-21; 45 IAC 3.1-1-22.

Taxpayer protests the Department's proposed assessment for 2011.

II. Tax Administration - Negligence Penalty.

Authority: IC § 6-8.1-10-2.1; 45 IAC 15-11-2.

Taxpayer protests the imposition of the negligence penalty.

III. Tax Administration-Interest.

Authority: IC § 6-8.1-10-1.

Taxpayer protests the imposition of interest.

The Indiana Department of Revenue ("Department") in a letter to Taxpayer dated July 2014, stated that, "After evaluating your account, the Department has determined that you never abandoned your Indiana Domicile. Accordingly, you incorrectly failed to file an Indiana return for tax year 2011." Subsequently, the Department issued a Proposed Assessment for 2011 Individual income tax.

Taxpayer disagreed with the assessment and submitted a protest to that effect. An administrative hearing was conducted during which Taxpayer's Representative explained the basis for the protest. This Letter of Findings results.

I. Indiana Individual Income Tax - Residency: Domicile.

The Department determined that Taxpayer was an Indiana resident that failed to file the 2011 Indiana income tax return, and that Indiana income tax was due for 2011. Taxpayer, to the contrary, claimed that he was not required to file a 2011 Indiana income tax return and he did not owe any Indiana income tax because Taxpayer was not an Indiana resident, worked in China in 2011, and paid taxes in China.

The issue is whether, for the tax year 2011, Taxpayer was an Indiana resident and therefore was subject to Indiana income tax.

As a threshold issue, all tax assessments are prima facie evidence that the Department's claim for the unpaid 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); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012). Thus, the taxpayer is required to provide documentation explaining and supporting its challenge that the Department's assessment is wrong. Poorly developed and non-cogent arguments are subject to waiver. Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138, 1145 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012).

Indiana imposes a tax "upon the adjusted gross income of every resident person, and on that part of the adjusted gross income derived from sources within Indiana of every nonresident person." IC § 6-3-2-1(a). IC § 6-3-2-2(a) specifically outlines what is income derived from Indiana sources and subject to Indiana income tax. To efficiently and effectively compute what is considered the Taxpayer's Indiana income tax, the Indiana statute refers to the Internal Revenue Code. IC § 6-3-1-3.5(a) provides the starting point to determine the Taxpayer's taxable income and to calculate what would be their Indiana income tax after applying certain additions and subtractions to that starting point.

For Indiana income tax purposes, resident "includes (a) any individual who was domiciled in this state during the taxable year, or (b) any individual who maintains a permanent place of residence in this state and spends more than one hundred eighty-three (183) days of the taxable year within this state. . . ." IC § 6-3-1-12; see also 45 IAC 3.1-1-21. Nonresident is "any person who is not a resident of Indiana." IC § 6-3-1-13.

Additionally, 45 IAC 3.1-1-22 states:

In Croop v. Walton, 157 N.E. 275 (Ind. 1927), a taxpayer, Mr. Walton, moved from Sturgis, Michigan to Elkhart, Indiana by selling his Michigan residence and purchasing a residence in Indiana, where he and his wife lived for several years for the benefits of his wife's health. Indiana assessed Mr. Walton state income tax on his intangible property. Id. at 276. Mr. Walton disagreed, arguing that his intangible property was not subject to Indiana taxes because he was domiciled in Michigan. Id at 276. The court found that Mr. Walton owned and managed a company and stores in Michigan; that Mr. Walton maintained his membership with lodges, clubs, and a church in Sturgis, Michigan; that Mr. Walton on various occasions exercised his civil and political rights in Sturgis, Michigan; and that Sturgis, Michigan was used in Mr. Walton's legal documents, including policies of insurance, mortgages, leases, contracts, and other instruments. Id at 279. Ruling in favor of Mr. Walton, the court concluded that Mr. Walton did not change his domicile from Michigan to Indiana and his intangible property was not subject to certain Indiana taxes. Id at 277. The court explained, in relevant part, that:

Further, the Indiana Supreme Court stated in Croop v. Walton, 157 N.E. 275 (Ind. 1927):

In State Election Bd. v. Bayh, 521 N.E.2d 1313 (Ind. 1988), the Indiana Supreme Court reiterated similar analysis and determined that Mr. Bayh met the residency requirement for the office of Governor because Mr. Bayh's domicile remained in Indiana even though Mr. Bayh moved to different states for various reasons for many years. Specifically, the court illustrated, in relevant part, that:

In short, any individual who was domiciled in this state during the taxable year is resident. IC § 6-3-1-12(a). "A change of domicile requires an actual moving with an intent to go to a given place and remain there. 'It must be an intention coupled with acts evidencing that intention to make the new domicile a home in fact. . . . [T]here must be the intention to abandon the old domicile; the intention to acquire a new one; and residence in the new place in order to accomplish a change of domicile."' Bayh, 521 N.E.2d.

In this instance, during the protest process, Taxpayer claimed that he worked in China during 2011. Taxpayer contends that he was not an Indiana Resident because he lived in China and paid taxes while in China. However, during the period while Taxpayer was in China, Taxpayer had his mail forwarded to an Indiana address, renewed his Indiana Driver's License and maintained a storage facility in Indiana. In order to change one's domicile from Indiana to an out-of-state location, the law requires the "intent of establishing a home at that place," 45 IAC 3.1-1-22, along with "acts evidencing [an] intention to make the new domicile a home in fact . . . ." Bayh, 521 N.E.2d at 1317. However, the law also requires a simultaneous manifestation of an intent to abandon the Indiana domicile. Id. As the law states, "[A] person has only one domicile at a given time . . . ." 45 IAC 3.1-1-22. Taxpayer's actions show the temporary nature of his assignment in China, as Taxpayer did not own a home in China, he rented a apartment in China, maintained an Indiana Driver's License and maintained a storage facility in Indiana. Therefore, Taxpayer's supporting documentation demonstrates that he had not abandoned his Indiana domicile and is subject to tax in Indiana for 2011. Taxpayer provided an Indiana individual income tax return for 2011, where he claims the Foreign Tax Credit. Taxpayer's protest is respectfully denied, but the file will be sent back to Audit to adjust the liability based upon the Indiana tax return.

Taxpayer's protest is respectfully denied, but the file will be sent back to Audit to adjust the liability based upon the Indiana tax return.

II. Tax Administration - Negligence Penalty.

Taxpayer requested that the Department abate the negligence penalty.

Pursuant to IC § 6-8.1-10-2.1(a), the Department may assess a negligence penalty if the taxpayer:

The Department may waive a negligence penalty when "the taxpayer affirmatively establishes that the failure . . . was due to reasonable cause and not due to negligence." 45 IAC 15-11-2(c). The taxpayer "must demonstrate that it exercised ordinary business care and prudence in carrying out or failing to carry out a duty giving rise to the penalty imposed under this section." Id. The Department is mindful that "[r]easonable cause is a fact sensitive question and thus will be dealt with according to the particular facts and circumstances of each case." Id.

In this instance, upon review, Taxpayer demonstrated that the steps he took in 2011 lead Taxpayer to reasonably believe he relocated to China. Given the totality of the circumstances, the Department is prepared to agree that Taxpayer affirmatively demonstrated that his failure to file and to pay tax for the 2011 tax year was due to reasonable cause and not due to negligence. Taxpayer, however, is on notice that should similar circumstances arise the negligence penalty may not be abated.

Taxpayer's protest of the negligence penalty is sustained.

III. Tax Administration - Interest.

The Department assessed interest on the unpaid tax liabilities. Taxpayer requested that the Department waive the interest.

IC § 6-8.1-10-1(a) provides, in relevant part, as follows:

Pursuant to IC § 6-8.1-10-1(e), the Department typically does not have the authority to waive the interest.

Taxpayer's protest of interest is respectfully denied.

For the reasons discussed above, Taxpayer's protest of the Department's proposed assessments for the 2011 tax years is denied, but the file will be sent back to Audit to adjust the liability based upon the Indiana tax return. Taxpayer's protest of the negligence penalty is sustained. Taxpayer's protest of interest is denied.