Proposed assessment on Husband and Wife's 2013 Indiana income tax return was appropriate because Husband's income was not included on the return; the associated penalty was waived but the associated interest was statutorily required and cannot be waived.

I. Individual Income Tax - Domicile.

Authority: IC § 6-1.1-12-37; IC § 6-3-2-1; IC § 6-3-1-12; IC § 6-8.1-5-1; 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); 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 Dep't of State Rev. v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014); Croop v. Walton, 157 N.E. 275 (Ind. 1927); State Election Bd. v. Bayh, 521 N.E.2d 1313 (Ind. 1988); 45 IAC 3.1-1-22; 50 IAC 24-2-5.

Taxpayers protest the imposition of Indiana income tax.

II. Individual Income Tax - Amount.

Authority: IC § 6-3-5-3; IC § 6-3-3-3; 45 IAC 3-1.1-1-76; 45 IAC 3.1-1-74.

Taxpayers protests the assessment of additional income tax.

III. Tax Administration - Negligence Penalty.

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

Taxpayers request that the Department abate the negligence/late filing penalty.

IV. Tax Administration - Interest.

Authority: IC § 6-8.1-10-1.

Taxpayers protest the imposition of interest on its tax liability.

Taxpayers ("Husband" and "Wife") both work and file married-filing-jointly federal and state individual income tax returns. Husband is a traveling professor while Wife and children live in Indiana. For tax year 2013, Husband earned income in Kansas while Wife earned income in Indiana. In April 2014 Taxpayers filed their 2013 tax returns which included a 2013 Federal tax return reporting both incomes, a 2013 part-year resident Kansas tax return ("K-40") reporting both incomes, and a full-year resident Indiana tax return ("IT-40") reporting only Wife's income.

In August of 2016 the Indiana Department of Revenue ("Department") issued Taxpayers a proposed assessment for 2013 income tax. The assessment explained that:

Taxpayers timely protested and submitted a signed 2013 income tax return by filing an Indiana Part-Year and Full-Year Non Resident return ("IT-40PNR") to support their protest. An administrative hearing was held and this Letter of Findings results. Additional facts will be provided as necessary.

I. Individual Income Tax - Domicile.

The Department assessed Taxpayers additional income tax because the income reported on their 2013 Federal return did not match the income reported on their 2013 IT-40. Taxpayers protested the assessment for several reasons, asserting that Husband's income was not subject to Indiana income tax and that the assessment was incorrect because their IT-40PNR showed that they are entitled to additional refund.

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); 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); see also Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012). When an agency is charged with enforcing a statute, the jurisprudence defers to the agency's reasonable interpretation of that statute "over an equally reasonable interpretation by another party." Indiana Dep't of State Rev. v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014).

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). Pursuant to IC § 6-3-1-12, a 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. . . ." In other words, a resident includes individuals who are domiciled in Indiana or maintain a permanent place of residence in Indiana and then spend more than 183 days in Indiana.

Wife lived and worked in Indiana for the tax year in question, thus she is a resident based on time spent in Indiana alone. Husband lived and worked in Kansas through the end of the school year (approximately May 31, 2013), as indicated on Husband's 2013 K-40. He then spent four months in Indiana before he moved on to his next assignment outside of Indiana. Husband did not spend more than 183 days in Indiana in 2013. Thus, to be considered a resident of Indiana, Husband must have been domiciled in Indiana.

Domicile is defined by 45 IAC 3.1-1-22, which states:

Indiana law further defines "[h]omestead" as "an individual's place of residence . . . that is located in Indiana" and that "the individual owns . . . ." IC § 6-1.1-12-37(a)(2). "'Principal place of residence' means an individual's true, fixed, permanent home to which the individual has the intention of returning after an absence." 50 IAC 24-2-5. A taxpayer is entitled to claim a deduction, known as a homestead deduction (or exemption), 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 (or exemption), 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).

Thus, a new domicile is not necessarily created when an individual moves to an address outside Indiana. Instead, the individual must move to the new non-Indiana address and have intent to remain at that non-Indiana address.

For example, in Croop v. Walton, 157 N.E. 275 (Ind. 1927), a taxpayer who was domiciled in Michigan sold his home in Michigan and moved to a new residence in Indiana where he and his wife lived for several years for the benefit of his wife's health. The taxpayer lived in the Indiana home "on account of the mental and physical condition of his wife, and continued to occupy it until such time as she could safely return to [Michigan] to live." Id. at 276. The court concluded that, based on the level of activity he maintained in Michigan and lack of intention to abandon his domicile, taxpayer did not change his domicile from Michigan to Indiana. The court explained, in relevant part, that:

Id. at 277. (Internal citations omitted) (Emphasis added).

In explaining the difference between "residence" and "domicile," the court in Croop stated:

Id. at 277-78. (Internal citations omitted) (Emphasis added).

Subsequently, in State Election Bd. v. Bayh, 521 N.E.2d 1313 (Ind. 1988), the Indiana Supreme Court further considered the meaning of "domicile" in determining that Mr. Bayh met the residency requirement for the office of Governor. The court concluded that Mr. Bayh's domicile remained in Indiana even though he moved to different states for various reasons for many years. The court explained, in pertinent part:

Id. at 1317-18 (Ind. 1988). (Emphasis added).

In the instant case, Taxpayers moved from California to Indiana in 2007. Taxpayers own a home in Indiana on which they claim a homestead deduction. By doing so, Taxpayers expressly informed the State of Indiana that they were entitled to the benefit of paying a lower property tax because their Indiana home is their "true, fixed, permanent home to which [they have] the intention of returning after an absence." In other words, by claiming a homestead deduction, Taxpayers declare that their Indiana home is their principal residence. While Husband travels for work, his family remains in Indiana and he returns to Indiana when the school year is complete. Wife lives and works in Indiana full-time. In addition to registering one of their cars in Indiana, Taxpayers have a car registered in California, but none in Kansas. Husband has an Indiana driver's license issued in 2012, expiring in 2018. Although Husband registered to vote in Kansas in 2012, he subsequently registered to vote in Indiana in 2016. Given the totality of the circumstances, Husband was domiciled in Indiana in 2013 thus his income was subject to Indiana income tax.

Husband was domiciled in Indiana for the tax year at issue therefore Taxpayers' assertion that Husband's income was not subject to Indiana tax is denied.

II. Individual Income Tax - Amount.

Taxpayers believe that the assessment was unfair because the information available to the public regarding proper filing procedure and definition of "Indiana Resident" is inadequate. As a result, Taxpayers were unable to determine how to correctly file their 2013 Indiana return.

As determined above, both Husband and Wife are domiciled in Indiana. Therefore, Taxpayers are required to file an IT-40, reporting both Husband and Wife's 2013 income. Husband worked in Kansas in 2013. Kansas, however, is not one of the states which have reciprocal agreements with Indiana. § IC 6-3-5-3; 45 IAC 3.1-1-76. Assuming Husband properly filed his 2013 Kansas state income tax return, reporting and remitting income tax to Kansas, Taxpayers will be entitled to claim a credit for the tax paid to Kansas (excluding local/county income tax) when they properly file their IT-40, pursuant to IC § 6-3-3-3(a), which provides as follows:

A further review of the Department's records showed that in proposing the assessment, the Department did not allow the credit as it was not claimed and there was a discrepancy between Taxpayers' Federal and Indiana adjusted gross incomes. To claim the credit Taxpayers must enclose Federal as well as state return transcripts in their IT-40. See also 45 IAC 3.1-1-74.

For tax year 2013, Husband was domiciled in Indiana, thus he was an Indiana resident and his income was subject to Indiana income tax. Taxpayers incorrectly reported only Wife's income on their 2013 IT-40, therefore the Department appropriately proposed an assessment. Nevertheless, Taxpayers' documentation demonstrated that the amount of the proposed assessment could be overstated because Husband's W2 income for 2013 was subject to Kansas income tax and Taxpayers may be able to claim a credit on their IT-40 for the state income tax paid to Kansas. Without the correctly filed IT-40, however, the Department is not able to properly review and determine the correct amount of tax due for 2013 and is also unable to agree that Taxpayers are entitled to additional refund.

In order to determine the correct amount of Taxpayers' Indiana income tax liability for 2013, Taxpayers are required to amend their 2013 IT-40, reporting both incomes within thirty (30) days from the date this decision is issued.

Taxpayer's protest is sustained provided that they amend their 2013 IT-40 return, reporting both incomes within 30 days from the date this decision is issued. Upon receiving Taxpayers' amended IT-40, the Department will review and recalculate Taxpayers' income tax liability accordingly. Otherwise, Taxpayers' protest is respectfully denied.

III. Tax Administration - Negligence Penalty.

The Department imposed a ten percent negligence penalty. Taxpayers argue that they should not be responsible for the penalty because their IT-40 was timely filed and they filed their IT-40 following the guidance provided by the Department. Taxpayers also argue that the penalty should be abated as the Department did not inform Taxpayers of the discrepancy until 2016.

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

The Department may waive a negligence penalty as provided in 45 IAC 15-11-2(c), as follows:

In the instant case, Taxpayers demonstrated that they attempted to comply with Indiana law by requesting an Advisory Letter from the Department for guidance so they could properly file their Indiana returns. Although the Advisory Letter and other Departmental guidance Taxpayers received caused some confusion over which form Taxpayers should have filed, Taxpayers made a good faith effort following the Department's instructions. Accordingly, the Department waives the penalty.

Taxpayers' protest of the negligence penalty is sustained.

IV. Tax Administration - Interest.

Taxpayers protest the imposition of interest. Under IC § 6-8.1-10-1, "[i]f a person fails to file a return for any of the listed taxes, fails to pay the full amount of tax shown on the person's return by the due date for the return or the payment, or incurs a deficiency upon a determination by the department, the person is subject to interest on the nonpayment." The Department cannot waive this interest under IC § 6-8.1-10-1(e) because it is statutorily required. Therefore, Taxpayers' protest of interest is denied.

Taxpayers' protest of interest is denied.

Taxpayers' protest of Issue I is denied; Husband is domiciled in Indiana, therefore his income is subject to Indiana tax. Taxpayers are sustained on Issue II provided that they properly amend their 2013 IT-40 return, reporting both incomes within 30 days from the date this decision is issued. Upon receiving Taxpayers' amended IT-40, the Department will review and recalculate Taxpayers' Indiana income tax liability accordingly. Otherwise, Taxpayers' protest is respectfully denied.

Taxpayers' protest of Issue III, negligence penalty, is sustained. However, Taxpayers' protest of Issue IV is respectfully denied.