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 This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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 provided documentation establishing that domicile was not in Indiana for 2011-2015. Thus the couple proved that they were not subject to Indiana adjusted gross income tax. Therefore, the Department's assessments of the 2011-2015 Indiana income tax were proven incorrect. Additionally, the penalty was abated.

I. Income Tax– Residency.

Authority: IC § 6-3-1-12; IC § 6-8.1-5-1; State Election Bd. v. Bayh, 521 N.E.2d 1313 (Ind. 1988); 45 IAC 3.1-1-22; Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Indiana Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); 45 IAC 3.1-1-22.

Taxpayers protest the imposition of Indiana adjusted gross income tax.

II. Tax Administration–Penalty.

Authority: IC § 6-8.1-10-3.

Taxpayers protest the imposition of a penalty.

Taxpayers are a married couple. The Indiana Department of Revenue ("Department") determined that Taxpayers filed a tax return in 2011 but did not file any subsequent returns. The Department therefore determined that Taxpayers were subject to Indiana income tax and penalty for the years 2011-2015. Taxpayers protested the Department's determination that they were subject to Indiana income tax and penalty. An administrative hearing was held and this Letter of Findings results. Further facts will be supplied as required.

I. Income Tax–Residency.

Taxpayers protest the imposition of Indiana adjusted gross income tax for the years 2011-2015. The Department determined that they owed the tax under IC § 6-3-2-1, because Taxpayers filed an Indiana income tax return and then did not file in the following years. Taxpayers argue that they only filed the 2011 return to get a refund because their employer ("Employer") erroneously withheld Indiana taxes on their income. Therefore, Taxpayers argue that they did not need to file any subsequent Indiana income tax returns, nor did they owe any Indiana income tax for the years in question because they did not have domicile or any income that would be directly allocated to Indiana.

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 Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dept. 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). Thus, all interpretations of Indiana tax law contained within this decision, as well as the preceding audit, shall be entitled to deference.

Pursuant to IC § 6-3-1-12, defines a resident as follows:

In other words, a resident includes individuals who are domiciled in Indiana and/or maintain a permanent place of residence in Indiana and then spend more than 183 days in Indiana. In this case, Taxpayers were able to establish that they did not spend more than 183 days in Indiana during any of the years in question. Therefore, in order to be considered a resident of Indiana during 2011-2015, Taxpayers must have been domiciled there.

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

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.

The Indiana Supreme Court considered the issue of the meaning of "domicile" in State Election Bd. v. Bayh, 521 N.E.2d 1313 (Ind. 1988), in which the court provided:

Therefore, in order to determine if Taxpayers are subject to the gross income tax, an examination of Taxpayers' domicile is necessary to determine whether or not the services they performed were in Indiana.

A review of the domiciliary criteria listed under 45 IAC 3.1-1-22 is illuminating in this matter. Taxpayers' only connection to Indiana is through Employer. Taxpayers never had any Indiana criteria as listed under 45 IAC 3.1-1-22. Of paramount importance is the fact that Taxpayers have established that they were never residents of Indiana and were never domiciled in Indiana. Consequently, Taxpayers have satisfied the Bayh factors and their domicile is not in Indiana.

Additionally, Taxpayers have provided sufficient documentation to establish that their compensation was not derived from sources within Indiana. Taxpayers explained that they filed an Indiana non-resident tax return because Employer, who is located in Indiana, erroneously withheld Indiana tax on their salaries. Consequently, they only filed an Indiana tax return in order to obtain a refund of the erroneously withheld Indiana tax. Thus, as Taxpayers are residents of and are domiciled in another country, the salaries they earned was from employment there. Thus, the income is not subject to tax in Indiana. Therefore, while it was reasonable for the Department to initially believe that the Taxpayers should have continued filing Indiana returns, Taxpayers have met the burden imposed by IC § 6-8.1-5-1(c) of proving the proposed assessment wrong.

Taxpayers protest is sustained.

II. Tax Administration - Penalty.

Taxpayers protest the imposition of penalties pursuant to IC § 6-8.1-10-3, which provides:

In this case, Taxpayers were sustained in total in Issue I above. Since the penalty at issue is based on base tax and since base tax is zero, Taxpayers' protest of the penalty imposed under IC § 6-8.1-10-3(b) is moot.

Taxpayers' protest of the imposition of penalty is sustained.

Taxpayers Issue I protest regarding the imposition of adjusted gross income tax is sustained. Taxpayers Issue II protest regarding the imposition of penalty is sustained.