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 This document is effective as of its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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 they were not domiciled in Indiana during 2013. Therefore, the Department's assessment for 2013 Indiana income tax was proven incorrect. Penalty was also abated.

I. Income Tax–Residency.

Authority: IC § 6-3-1-12; IC § 6-8.1-5-1; IC § 6-1.1-12-37; State Election Bd. v. Bayh, 521 N.E.2d 1313 (Ind. 1988); 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; 50 IAC 24-2-5.

Taxpayers protest the imposition of Indiana individual 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, referred to hereinafter as "H" for husband "W" for wife as needed for clarity. The Indiana Department of Revenue ("Department") determined that Taxpayers were Indiana residents for tax year 2013, and that Taxpayers neither filed an Indiana individual income tax return nor paid any Indiana individual income tax for the year 2013. Taxpayers protested the Department's determination of residency and the imposition of a penalty. An administrative telephone 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 tax year 2013. The Department determined that Taxpayers were Indiana residents for those years, stating in a February 1, 2017, letter to Taxpayers that they took the "Indiana Homestead Exemption Credit on property" located in Indiana. Taxpayers argue that they were residents of a different state within the United States for 2013–hereinafter referred to as "State Z"–and were not domiciled in Indiana for that period.

As a threshold issue, it is Taxpayers' 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, a resident is defined 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, Taxpayer was able to establish that he did not spend more than 183 days in Indiana during 2013. Therefore, in order to be considered a resident of Indiana, Taxpayer must have been domiciled here.

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:

The Department's proposed assessment, per the February 1, 2017 letter, was based upon the "Indiana Homestead Exemption Credit." The pertinent statute is IC § 6-1.1-12-37(a)(2), which states in part:

Additionally, when a taxpayer claims the homestead exemption, the dwelling has to be their principal place of residence, as provided by IC § 6-1.1-12-37(a)(2). 50 IAC 24-2-5 defines that as:

And, as the court in Bayh explained, "A change of domicile requires an actual moving with an intent to go to a given place and remain there." Bayh, at 596.

Taxpayers state in their protest letter that although in 2000 they were married in Indiana, that they were residents of another state for 2013:

A copy of the "Claim for Homestead Property Tax Credit" was provided by Taxpayers. It is dated from 2005 and lists H on the form along with another person. Taxpayers state that the other person on the form is H's sister. Taxpayers state that the sister "uses the homestead exemption," which "has apparently triggered an IDR rule that residency is automatically assumed as a result." Taxpayers state that H's mother "transferred by quitclaim deed the home at [Indiana address]" to H and his sister. Taxpayers further state that there was "no designation of tenancy on the deed." Taxpayers argue that H's sister lives at the home and she is entitled to the homestead exemption, and that Taxpayers live in State Z.

Taxpayers have provided documentation supporting their argument, which included the following:

• The 2013 mortgage interest statement for the home in State Z;

• 2013 W-2 forms showing State Z for their address and also State Z as the address for their respective employers;

• 1099-G form showing that in 2013 they received benefits from State Z;

• State Z vehicle registration information for 2013;

• State Z motor vehicle division records for Taxpayers;

• A copy of Taxpayer's marriage license records for Indiana, with a "Marriage Date" in the year 2000;

• The quitclaim deed for the Indiana property, showing the transfer to H and his sister;

• The Claim for Homestead Property Tax Credit filed in May of 2005, listing H and his sister. The form is signed by the sister;

• 2013 banking statements for Taxpayers listing their address as State Z;

• A veterinary bill for one of their pets, dated 2013; the animal hospital is in State Z;

• 2013 utility bills for the home in State Z.

Taxpayers have provided the Department with documentation to meet their burden of proof found in IC § 6-8.1-5-1(c). H's mother transferred property to him and his sister. It was the sister that lived at the Indiana property, and the sister that signed the Claim for Homestead Property Tax Credit form. Taxpayers provided the Department with numerous documents and information establishing that they were residents of State Z for the year 2013.

Taxpayers' protest is sustained.

II. Tax Administration–Penalty.

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

In this case, as outlined in Issue I supra, Taxpayers have been sustained in whole on the imposition of Indiana income tax for 2013, thus the imposition of penalty is moot.

Taxpayers' protest of the imposition of penalty is sustained.

Taxpayers' protest regarding the imposition of Indiana adjusted gross income tax is sustained. Taxpayers' protest regarding the imposition of penalty is sustained.

Posted: 01/31/2018 by Legislative Services Agency