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 Final Order Denying Refund.

The Department was unable to agree with Out-of-State Business that it was entitled to a refund of collection fees incurred by the Department's collection agent; Out-of-State Business ceased filing Indiana withholding tax returns, failed to respond to the Department's proposed assessment of estimated tax, and the Department's collection agent was entitled to the fees attributable to the agent's effort to collect the assessments.

I. Tax Administration - Collection Costs and Fees.

Authority: IC § 6-8.1-5-1(b); IC § 6-8.1-8-2(b); IC § 6-8.1-8-4; IC § 6-8.1-10-3; P/S, Inc. v. Ind. Dep't of State Revenue, 853 N.E.2d 1051 (Ind. Tax Ct. 2006)

Taxpayer argues that the Department erred in denying it a refund of collection costs and fees.

Taxpayer is an out-of-state security and data management company. Taxpayer formerly operated an Indiana business location and paid Indiana withholding tax on behalf of its employee. Taxpayer states that it ceased operating the Indiana satellite office and that it now has no Indiana employees. Taxpayer also ceased filing Indiana withholding tax returns.

In the absence of the requisite withholding tax returns, the Indiana Department of Revenue ("Department") issued Taxpayer proposed assessments of additional withholding tax. Although the assessments were sent to Taxpayer's correct mailing address and were not returned to the Department, Taxpayer failed to respond to the proposed assessments. When the amounts went unpaid and unaddressed, the matter was referred to the Department's collection agency.

Acting on behalf of the Department, the collection agency placed a levy on Taxpayer's bank account. The Department obtained approximately $21,000.

Taxpayer submitted a form GA-110L (Claim for Refund) seeking return of the $21,000 arguing that it did not owe withholding tax because it had closed its Indiana location and no longer had an Indiana employee or employees. The Department granted the claim in part declining, however, to return $3,500 in collection fees.

Taxpayer disagreed with the decision and submitted a protest to that effect. An administrative hearing was conducted during which Taxpayer's representative explained the basis for the protest. This Final Order Denying Refund results.

I. Tax Administration - Collection Costs and Fees.

The issue is whether Taxpayer was responsible for paying costs incurred by the Department's collection agent.

When the Department determined that Taxpayer failed to file its withholding returns on behalf of its employee (or employees), Indiana law permitted and required the Department to issue assessments based on the "best information available."

IC § 6-8.1-5-1(b) provides in relevant part:

When a proposed amount remains "unpaid," the Department adds a ten-percent penalty as provided for under IC § 6-8.1-8-2(b).

In addition, the Department is entitled to employ the services of a collection agent which - in turn - is entitled to impose penalties sufficient to compensate the collection agent for its own efforts. The statutory authority is found at IC § 6-8.1-8-4.

However, Taxpayer explains that it "did not have any employees during Q1 2016. We disagree that we should pay collection fees related to a balance due that we did not owe."

Taxpayer also correctly notes that it has since filed a form BC-100 ("Indiana Business Tax Closure Request") effectively "closing" the withholding account as of January 2015. The BC-100 was received by and processed by the Department November 2016.

Nonetheless, the Department notes that the proposed assessments were sent to the address indicated in the Department's records. It is these proposed assessments which eventually led to the issuance of the collection warrants and the subsequent levy on Taxpayer's account.

The Department issued the notices of proposed assessments for periods during which Taxpayer failed to file the requisite withholding returns. The Department did so under authority and under the requirements set out in IC § 6-8.1-10-3 which provides as follow:

The Indiana Tax Court has provided guidance on this issue in P/S, Inc. v. Ind. Dep't of State Revenue, 853 N.E.2d 1051 (Ind. Tax Ct. 2006). In that decision, the court explained that the petitioner was responsible for paying collection fees because it had not rebutted the presumption that it received notices which the Department mailed and - as a result - had not timely responded to the notices. Id. at 1054-55. The court explained that the petitioner in that case merely asserted that it had not received notice and that the Department explained it had not received the notices back by return mail. Id. The court concluded that the petitioner was presumed to have timely received the demand notices, and therefore was not entitled to a refund of collection fees that attached upon the issuance of the tax warrants. Id. at 1055.

The only remaining issue is whether - as between the state of Indiana and Taxpayer - who should be responsible for paying the collection fees incurred by the Department's agent. The Department is unable to agree that it is the state of Indiana which should incur these fees or that the fee amount should be refunded to Taxpayer. There is nothing to indicate that either the Department or its agent failed to follow Taxpayer's directions in this matter. There is nothing to indicate that it was the Department or its agent's error which led to the efforts to collect the withholding tax amounts.

Taxpayer's protest is respectfully denied.

September 6, 2018