NOTICE: IC § 4-22-7-7 permits the publication of this document in the Indiana Register. The publication of this document provides the general public with information about the Indiana Department of Revenue's official position concerning a specific set of facts and issues. The "Holding" section of this document is provided for the convenience of the reader and is not part of the analysis contained in this determination.

Individuals were full-year Indiana residents for the 2014 and 2015 tax years because they failed to demonstrate that they effectively changed their domicile from Indiana to Washington. Individuals continued owning their house in Indiana and an Indiana Homestead deduction was claimed since 2010. Individuals were not entitled to additional refund because they properly filed their Indiana full-year returns (Form IT-40) reporting their income.

I. Indiana Individual Income Tax - Residency.

Authority: IC § 6-1.1-12-37; 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; Scopelite v. Indiana Dep't of Local Gov't Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep't of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 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; 45 IAC 3.1-1-22.5; 45 IAC 3.1-1-23; 50 IAC 24-2-5.

Taxpayers protest the Department's refund denial of individual income tax for the 2014 and 2015 tax years.

Taxpayers (Husband and Wife) are individuals who owned an Indiana home since 2008 and sold their home in late 2016. An Indiana homestead credit was claimed on their home since 2010 until the 2016 sale of their home. Taxpayers timely filed married-jointly Indiana income tax returns for 2014 and 2015. In late 2017, Taxpayers amended their income tax returns for both years by filing Form IT-40X and IT-40PNR, claiming that they were entitled to additional refunds. Taxpayers stated that they "should have filed an IT-40PNR with the original filing as they move their tax home to Washington. Their employer erroneously continued to withhold Indiana and county taxes."

Upon review of Taxpayers' amended returns, the Indiana Department of Revenue ("Department") denied Taxpayers' claim for additional refund. The Department determined that Taxpayers were Indiana residents for both years and that they properly filed their original Indiana income tax returns reporting their Indiana income tax.

Taxpayers protested the Department's refund denial. An administrative hearing was held during which Taxpayers' representative explained the basis of their protest. This Final Order Denying Refund ensues and addresses Taxpayers' protest. Additional facts will be provided as necessary.

I. Indiana Individual Income Tax - Residency.

Upon reviewing Taxpayers' Form IT-40Xs and IT-40 PNRs for both 2014 and 2015, the Department determined that Taxpayers were Indiana full-year residents for these years and were not entitled to additional refunds because Taxpayers were domiciled in Indiana. The Department explained, in relevant part, as follows:

Taxpayers, to the contrary, argued that they were entitled to additional refunds because they resided in Washington from July 2014 through July 2015, that their "tax home" was in Washington, and that their income earned during this period was not subject to Indiana income tax. Thus, the issue is whether Taxpayers demonstrated that they were not Indiana full-year residents and therefore were entitled to additional refund pursuant to their amended filings.

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. For Indiana income tax purposes, the presumption is that taxpayers file their federal income tax returns as required pursuant to the Internal Revenue Code. Thus, to efficiently and effectively compute what is considered the taxpayers' Indiana income tax, the Indiana statute refers to the Internal Revenue Code. IC § 6-3-1-3.5(a) provides the starting point to determine the taxpayers' taxable income and to calculate what would be their 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.

Recently, the Department revised the Adjusted Gross Income Tax regulations. Some of the revisions intended to clarify the definition of a person's domicile for Indiana income tax purposes and afford more considerations in determining a person's domicile. This final determination thus applies the new regulations accordingly.

Indiana law further defines "[h]omestead" 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). "'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 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 a place outside of Indiana. Instead, the individual must move to the new location and have an intent to remain there indefinitely.

In Croop v. Walton, 157 N.E. 275 (Ind. 1927), a taxpayer, Mr. Walton, 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. Mr. Walton 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, Mr. Walton 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, in this instance, contended that in July 2014, they relocated to Washington due to a change of Husband's employment. Taxpayers asserted, in part, that,

Taxpayers maintained that they were entitled to additional refunds because a portion of their income was not subject to Indiana income tax. To support their protest, Taxpayers provided additional documentation, including a lease, a letter from Husband's employer, and the school records of Taxpayers' children, to show they were in Washington from July 2014 through July 2015.

Taxpayers may also qualify as Indiana residents if they spent 183 days or more during 2014 or 2015 in Indiana when they maintained a permanent place of residence in Indiana. IC § 6-3-1-12; 45 IAC 3.1-1-21. The Department however is not required to address this issue in this determination. Taxpayers did not dispute and did not demonstrate otherwise. 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. 2012). Therefore, the Department considered the issue whether Taxpayers were Indiana residents based on their domicile.

As mentioned earlier, "[a] person has only one (1) domicile at a given time even though that person may be statutorily a resident of more than one (1) state. . . ." 45 IAC 3.1-1-22(a). "Once a person is domiciled in Indiana, that status is retained until such time as he or she voluntarily takes positive action to become domiciled in another state or country and abandons the Indiana domicile by relinquishing the rights and privileges of residency in Indiana." 45 IAC 3.1-1-22(b). "To establish a new domicile, the person must be physically present at a place, and must have the simultaneous intent of establishing a permanent place of residence at that place." 45 IAC 3.1-1-22(c). "The intent to change one's domicile must be present and fixed and not dependent upon the happening of some future or contingent event. It is not necessary that the person intend to remain there until death; however, if the person, at the time of moving to the new location, has definite plans to leave that new location, then no new domicile has been established." In other words, "[t]o effect a change of domicile, there must be an abandonment of the first domicile with an intention not to return to it, and there must be a new domicile acquired by residence elsewhere with an intention of residing there permanently, or at least indefinitely." Croop, 157 N.E. at 276; see also Bayh, 521 N.E.2d at 1317-18.

In this instance, it is well-established that Taxpayers have been Indiana residents since late 1990s. The publicly verifiable records established that Taxpayers were the owners of their Indiana home since 2008 and claimed the Indiana homestead deduction on their Indiana home since 2010. When the homestead deduction was claimed, Taxpayers necessarily affirmed that the Indiana home is their "true, fixed, permanent home to which [they have] the intention of returning after an absence." Otherwise, Taxpayers were required to notify the county that they no longer qualified for the homestead deduction within sixty days after the date of that change. IC § 6-1.1-12-37(f). Thus, there is a rebuttable presumption that Taxpayers were Indiana residents for both years.

Upon review, Taxpayers' reliance on their documentation is misplaced. Specifically, Taxpayers' supporting documents showed that they signed a one-year lease for their stay in Washington from July 15, 2014 through July 15, 2015, and their children enrolled in schools in Washington. Taxpayers, however, did not provide other information to demonstrate that their intent to abandon their Indiana domicile. Without abandoning their Indiana domicile, the Department is not able to agree that Taxpayers effectively established the new one in the State of Washington. Particularly, Taxpayers did not rent their Indiana home; rather, they continued claiming the Indiana homestead deduction on their Indiana home. Taxpayers filed their original returns listing their Indiana address as current mailing address for both years. Taxpayers did not take additional steps to remove the homestead deductions which were presumably claimed in error. Taxpayers did not file their 2014 and 2015 state income tax returns in Washington. Taxpayers also did not obtain driver's licenses or register their vehicles in Washington, nor did Taxpayers register to vote in Washington. Eventually, at the end of lease, Taxpayers returned to Indiana in July 2015. Thus, the Department is not able to agree that Taxpayers effectively changed their domicile and were not Indiana residents for these years. Taxpayers' residence in the State of Washington was temporary.

In conclusion, the Department is mindful that there is no one set of standards that will accurately indicate the person's intent in every relocation. 45 IAC 3.1-1-22(d). Under Indiana law, mere ownership of Indiana property does not necessarily make that owner an Indiana resident for state income tax purposes. However, Taxpayers failed to rebut the presumption that they were domiciled in Indiana and thus were not entitled to additional refunds for both 2014 and 2015.

Taxpayers' protest of the residency issue is denied.

March 21, 2018