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 This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Married couple established that, for 2013, they were not domiciled in Indiana. However, because Wife earned wages in Indiana, they must file a form IT-40RNR for tax year 2013.

I. Individual Income Tax - Residency.

Authority: IC § 6-8.1-5-1; IC § 6-3-2-1; IC § 6-3-2-2; IC § 6-3-1-3.5; IC § 6-3-4-1; IC § 6-3-5-1; IC § 6-3-1-12; Dep't of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2011); State Election Bd. v. Bayh, 521 N.E.2d 1313 (Ind. 1988); Croop v. Walton, 157 N.E. 275 (Ind. 1927); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 2011); Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); 45 IAC 3.1-1-22.

Taxpayers protest the imposition of Indiana individual income tax for the 2013 tax year.

Husband and Wife ("Taxpayers") filed a 2013 Reciprocal Nonresident Indiana Individual Income Tax Return ("IT-40RNR"). The Indiana Department of Revenue ("Department") did not accept Taxpayer's IT-40RNR as, based on the best information available to it, the Department determined that, for tax year 2013, Taxpayers had Indiana income. As such, the Department concluded that Taxpayers were Indiana residents who should have filed a 2013 Indiana Full-Year Resident Individual Income Tax Return ("IT-40") and pay any tax due. The Department thus issued a tax assessment for Taxpayers for 2013.

Taxpayers timely protested the assessment and an administrative hearing was held. This Letter of Findings results. Additional facts will be provided as necessary.

I. Individual Income Tax - Residency.

The Department determined that Taxpayers were Indiana residents during tax year 2013 because Taxpayers appeared to have taken the homestead deduction in Indiana and also earned income in Indiana. The Department therefore concluded that Taxpayers were domiciled in Indiana in 2013 and their income was subject to Indiana income tax.

Taxpayers contend that they owned property in Indiana in 2013, however, they did not claim the homestead deduction on any of that property until tax year 2014. Further, Taxpayers argue that while Wife worked in Indiana, Taxpayers lived in Kentucky in 2013, thus Taxpayers do not believe that they owe Indiana individual income tax for tax year 2013.

As a threshold issue, all tax assessments are prima facie evidence that the Department's claim for unpaid tax is valid; the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2011); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Consequently, the taxpayer is required to provide documentation explaining and supporting its challenge that the Department's position 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. 2011). 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.'" Dep't of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Thus, all interpretations of Indiana tax law contained within this decision, shall be entitled to deference.

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). Therefore, the first determination in this instance is whether or not Taxpayers were residents of Indiana in 2013. 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 during the taxable year. In this case, Taxpayers owned a rental property in Indiana in 2013 and purchased a home in Indiana in 2013. Taxpayers continued to live in their Kentucky home until 2014 and visited their rental property "an average of [two] times a month]." Therefore, Taxpayers were able to establish that they did not spend more than 183 days in Indiana during 2013.Thus, in order to be considered residents of Indiana during 2013, Taxpayers must have been domiciled in Indiana for the tax year.

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

(Emphasis added).

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:

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

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

Taxpayers lived in Kentucky from approximately 1999 until 2014. During this time, Wife worked in Indiana while Husband worked in Kentucky. On or around 2008 or 2009, Taxpayers acquired a rental property in Indiana, but did not take the homestead on that property. For the tax year at issue, Taxpayers' drivers licenses were issued in Kentucky and their vehicles were registered in Kentucky. Taxpayers owned a home in Kentucky and filed a Kentucky income tax return. Husband's 2013 W2 lists Taxpayers' Kentucky address while Wife's 2013 W2 lists the address of the Indiana home Taxpayers purchased in 2013. Taxpayers owned a boat which was licensed in Indiana because they kept the boat at their Indiana rental property, but the license listed Taxpayers' Kentucky address. Finally, Taxpayers purchased their Indiana home in late June of 2013, but did not move to Indiana due to the extensive repairs the Indiana home required. Taxpayer sold their Kentucky home in 2014 and provided proof that they did not take the homestead credit on their new Indiana home until 2014.

Given the totality of the circumstances, the Department agrees that Taxpayers were not domiciled in Indiana in 2013. While Taxpayers had contact with Indiana, this contact was not enough to establish an Indiana domicile. However, as mentioned above, 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) (Emphasis added). Taxpayers have established that they were not Indiana residents in 2013. However, because Wife worked in Indiana, it is appropriate to determine whether Taxpayers are liable for Indiana income tax on her wages.

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. IC § 6-3-2-2(a) specifically outlines what is income derived from Indiana sources and subject to Indiana income tax as follows:

IC § 6-3-4-1 dictates who must file an income tax return in Indiana. According to the statute, any nonresident individual who has gross income from sources within Indiana in a given taxable year must file a return in Indiana for that year. IC § 6-3-4-1(2). The Indiana code provides an exception to this rule. Under IC § 6-3-5-1:

Per the IT-40PNR 2013 Instruction Booklet, Kentucky was a reciprocal state with Indiana, thus, individuals who were full-year residents of Kentucky and whose only type of Indiana income was from wages, tips, or salary, were required to file an IT-40RNR. The IT-40RNR calculates Indiana county tax due based on the Indiana county of employment and then allows a credit for any Indiana state and/or county taxes withheld on an individual's W2.

Taxpayers filed a 2013 IT-40RNR, however, the 2013 IT-40RNR filed by the Taxpayers was blank. The Department agrees that Taxpayers are not domiciled in Indiana, and Taxpayers are sustained on that issue. Nevertheless, Taxpayers are notified that they must file a complete IT-40RNR for tax year 2013.

Taxpayers' protest is sustained.