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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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.

Husband and Wife provided documentation to establish that wife was not domiciled in Indiana for 2012. Therefore, Individuals properly filed a 2012 part year resident Indiana return to properly reflect Husband's Indiana income.

I. Indiana Individual Income Tax - Residency.

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; IC § 6-1.1-12-37; 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); 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.

Taxpayers protest the Department's proposed assessment for the 2012 tax year.

II. Tax Administration - Non-Filer Penalty and Interest.

Authority: IC § 6-8.1-10-3; IC § 6-8.1-10-1.

Taxpayers protest the imposition of the penalty and interest.

Taxpayers are a married couple ("Husband and Wife"). Taxpayers purchased a home in Indiana in May 2012. The Indiana Department of Revenue ("Department") determined that Taxpayers were Indiana residents for the tax year 2012 and that Taxpayers failed to file their 2012 Full Year Indiana Income Tax return. The Department therefore, issued a proposed assessment for 2012 income tax, penalty, and interest.

Taxpayers protested the assessment. An administrative phone hearing was held. This Letter of Findings ensues and addresses Taxpayers' protest of the proposed assessment for the tax year 2012. Additional facts will be provided as necessary.

I. Indiana Individual Income Tax - Residency.

The Department assessed Taxpayers income tax for the 2012 tax year on the ground that Taxpayers were Indiana residents in 2012 and that they failed to file their 2012 Indiana income tax return. The Department based its assessment on the determination that Husband owned property in Indiana and took the homestead exemption on that property, and Taxpayers renewed vehicle registration with the Indiana Bureau of Motor Vehicles for 2015 and 2016.

In response to the Department's determination that Taxpayers were residents, Taxpayers filed an Indiana Part Year return only claiming Husband's income as taxable to Indiana. Taxpayers argue that Wife was not an Indiana resident and therefore her income was not subject to Indiana taxes and provided documentation to support this assertion. The issue is whether, for the tax year 2012, Taxpayers were Indiana residents and were therefore 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; 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, Taxpayer is required to provide documentation explaining and supporting her challenge that the Department's assessment is wrong.

Indiana imposes a tax "on 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. IC § 6-3-1-3.5(a) provides the starting point to determine the taxpayer's taxable income and to calculate what would be her 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:

Under Indiana law "[h]omestead" is defined as "an individual's principal place of residence that is located in Indiana" and that "the individual owns . . . ." IC § 6-1.1-12-37(a)(2). A taxpayer is entitled to claim a deduction, known as homestead deduction, against taxes imposed on his or her homestead property pursuant to IC § 6-1.1-12-37(e). When the taxpayer is no longer qualified for the homestead deduction, the taxpayer must notify the auditor of the county where the homestead is located within sixty days after the date of that change. IC § 6-1.1-12-37(f). Otherwise various penalties and fines ensue, including the requirement to pay back the credit.

For guidance in determining a taxpayer's domicile, the Department refers to Croop v. Walton, 157 N.E. 275 (Ind. 1927). In Croop 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 276-78. Mr. Walton disagreed, arguing that his intangible property was not subject to Indiana taxes because he was domiciled in Michigan. Id. The court found that Mr. Walton: owned and managed a company and stores in Michigan; maintained his membership with lodges, clubs, and a church; on various occasions exercised his civil and political rights; and that Sturgis was used in his legal documents, including insurance policies, mortgages, leases, contracts, and other instruments. 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. The court explained, in relevant part, that:

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 a resident. IC § 6-3-1-12(a). "A change of domicile requires an actual moving with 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 at 1317.

Taxpayers protest the Department's determination that they both were required to file full year Indiana IT-40s. Taxpayers explained that Husband lived and worked in Missouri until he bought a house in Indiana in May 2012. Wife lived and worked in South Carolina for the entire year at issue. Husband bought house in his name and took the homestead deduction on that home when he purchased it. Husband also argues that pursuant to the instructions on State Form 5473(R13/12-09) under "When to File" the homestead deduction claim must be completed the year prior to the first year for which the person wishes to obtain the deduction. In addition IC § 6-1.1-12-37(h) states that the homestead deduction does not apply the first year in which the deduction was claimed. Therefore, Husband did not receive the benefit of the homestead deduction until one year after he took the deduction, which in this case was 2013, the year after the one for which the Department issued proposed assessments.

Taxpayers provided documentation showing that Wife's income is not subject to Indiana tax and that they properly filed an Indiana PNR. The documents included Taxpayers' closing on their Indiana home in May 2012, their Missouri 2012 Individual Tax Return showing that the Husband only earned income in Missouri, their South Carolina 2012 Individual Tax Return showing Wife's income earned in that state, and their Indiana PNR return taxing only the Husband's income. Taxpayers also provided documentation showing that Wife's domicile was not in Indiana for the year at issue. That documentation included the closing materials on her South Carolina home showing only Wife's name, 1099s for the years at issue showing Wife's South Carolina address, a copy of a check payment to a South Carolina club, a real estate tax receipt for the South Carolina home, receipts for contributions to a South Carolina church, and a copy of Wife's South Carolina voter registration. All of the factors weigh in favor of Taxpayer's argument that Wife was not a resident of Indiana during 2012, as explained by Croop and Bayh.

Pursuant to 45 IAC 3.1-1-22 Taxpayers have documented relevant facts that establish that Husband properly filed a 2012 Indiana PNR return. Husband's 2012 Indiana income is subject to Indiana income tax because he purchased a home in Indiana in 2012, and claimed that home was his permanent residence by taking the homestead deduction. This means that Husband spent more than 183 days in Indiana during 2012 and was a resident in Indiana for 2012 as defined by IC § 6-3-1-12. Wife's documentation establishes that she was neither a resident nor domiciled in Indiana for the year at issue, and therefore her income was not subject to Indiana income tax as provided by IC § 6-3-2-1(a) and IC § 6-3-2-2(a). Taxpayers' PNR will be processed, and Taxpayer will be billed accordingly.

Taxpayer's protest is respectfully sustained in part and denied in part as explained above.

II. Tax Administration - Non-Filer Penalty and Interest.

Taxpayer requests that the Department abate the penalty and interest. Pursuant to IC § 6-8.1-10-3(a), the Department may assess a penalty if the taxpayer "fails to file a return on or before the due date . . . ."

Indiana imposes interest on overdue tax pursuant to IC § 6-8.1-10-1(a), which states:

Taxpayers established that Wife was not domiciled in Indiana and therefore properly filed an Indiana PNR. However, because the return was filed in response to the Department's investigation, it was not timely pursuant to IC § 6-8.1-10-3, the Department will recalculate penalty and interest pursuant to the liability confirmed in the PNR.

Taxpayers' protest of the penalty and interest will be adjusted in accordance with the filing of their PNR Indiana return.

For the reasons discussed above, Taxpayers' protest of the Department's proposed assessment for the 2012 tax year is sustained in part. Taxpayers' protest of the penalty and interest will be adjusted in accordance with the filing of their PNR Indiana return.