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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Individual demonstrated that the proposed assessment was incorrect because he was not an Indiana resident. Individual however had income from real property located in Indiana. As such, that income was subject to Indiana income tax. Individual was required to amend his return in order to properly claim a refund of overpayment.

I. Indiana Individual Income Tax - Residency and Indiana Income.

Authority: 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; IC § 6-8.1-5-1; IC § 6-8.1-5-2; IC § 6-1.1-12-37; 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; Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Miller Brewing Co. v. Indiana Dep't of State Revenue, 903 N.E.2d 64 (Ind. 2009); 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).

Taxpayer protests the Department's refund denial and additional assessment for 2019.

Taxpayer is an individual who currently resides in the State of Georgia ("Georgia"). Taxpayer maintains a separate residence and a rental property in Indiana.

In early 2020, Taxpayer timely filed an IT-40PNR (Indiana Part-Year Resident or Full-Year Nonresident) return for 2019. On his 2019 IT-40PNR return, Taxpayer stated that he had zero ($0) Indiana income, requesting a full refund of tax withheld on his behalf. The Indiana Department of Revenue ("Department") reviewed the information and determined that Taxpayer was an Indiana resident and had Indiana income in 2019. As such, the Department adjusted Taxpayer's filing, denying Taxpayer's refund request; in turn, resulting in additional income tax assessment.

Taxpayer protested both the refund denial and assessment. A phone hearing was held. Taxpayer submitted additional supporting documentation to support his protest. This Letter of Finding ensues. Additional facts will be provided, as necessary.

I. Indiana Individual Income Tax - Residency and Indiana Income.

After cross-referencing the Department's records and examining Taxpayer's filing for 2019, the Department determined that Taxpayer was an Indiana resident who had Indiana income and that Taxpayer owed additional income tax. The Department thus made "line-by-line" adjustments and assessed Taxpayer additional income tax pursuant to IC § 6-8.1-5-2.

Taxpayer, to the contrary, asserted that he was entitled to a full refund. Taxpayer stated that although he maintains real property in Indiana, for 2019, he was not Indiana resident and did not have Indiana income. As such, Taxpayer argued that he did not owe any Indiana income tax for 2019. Therefore, the issue in this case is whether Taxpayer's income was subject to Indiana income tax because he was an Indiana resident or his income was attributable to Indiana source.

As a threshold issue, all tax assessments are prima facie evidence that the Department's claim for the unpaid tax is valid; the taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c); Lafayette Square Amoco, Inc. v. Indiana Dep't of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007); Indiana Dep't of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012). "[E]ach assessment and each tax year stands alone." Miller Brewing Co. v. Indiana Dep't of State Revenue, 903 N.E.2d 64, 69 (Ind. 2009). Therefore, the taxpayer is required to provide documentation explaining and supporting its challenge that the Department's assessment 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. 2012).

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. To efficiently compute Indiana resident's state income tax, the Indiana law references the Internal Revenue Code. IC § 6-3-1-3.5(a) provides the starting point to determine the taxpayer's taxable income and to calculate what would be the taxpayer's 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.

A person is presumed to be domiciled in Indiana if the person "[c]laim[s] a homestead credit or exemption . . . on a home in [Indiana]." 45 IAC 3.1-1-22.5(c)(2017). Nonetheless, the "person may rebut this presumption through the presentation of substantial contrary evidence." Id. (Emphasis added).

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:

The Indiana Supreme Court subsequently, in State Election Bd. v. Bayh, 521 N.E.2d 1313 (Ind. 1988), 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:

The Department in this case changed Taxpayer's 2019 filing because Taxpayer had an Indiana home and a homestead credit was claimed on that Indiana property for 2019. The Department recalculated Taxpayer's Indiana adjusted gross income tax, starting with his federal adjusted gross income.

Taxpayer disagreed. Taxpayer contended that although he continuously maintains real property in Indiana (including a rental property), he changed his domicile to Georgia prior to 2019. Since he lived and worked in Georgia during 2019, Taxpayer claimed that his income was subject to Georgia state income tax. Taxpayer provided his 2019 Georgia state income tax filing and a bank statement to support his position that state tax was paid to Georgia.

Additionally, Taxpayer asserted that the homestead credit in question was erroneously claimed on his Indiana residence when his divorce and relevant legal documents were finalized in a Georgia local court in late 2019. After the hearing with the Department, Taxpayer took a further step to contact the auditor of the county where his Indiana home is located and to remove the erroneous homestead credit on that property.

Therefore, based on the information and supporting documentation provided by Taxpayer, the Department is prepared to agree that for the tax year 2019, Taxpayer was a nonresident for Indiana income tax purposes because Taxpayer did not spend more than 183 days within Indiana and has changed his domicile to Georgia.

As mentioned earlier, Indiana imposes a tax "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)(1) specifically includes "income from real or tangible personal property located in this state." In this instance, Taxpayer maintains a rental property located in Indiana since 2013. As such, that income is income subject to Indiana income tax under IC § 6-3-2-2(a)(1).

Taxpayer, to the contrary, claimed that, for 2019, he did not receive income from that rental property in Indiana. Taxpayer asserted that he had transferred his ownership of that rental property in Indiana to his former spouse pursuant to a Settlement Agreement. To support his protest, Taxpayer offered the executed Settlement Agreement as well as the Final Judgement and Decree of Divorce issued by the Georgia local court.

Upon review, however, the Department is not able to agree. Specifically, Taxpayer's supporting documentation demonstrated that the Settlement Agreement was signed in September 2019 and the Final Judgement and Decree of Divorce was issued in October 2019. Taxpayer was required to transfer his ownership of that rental property "within six (6) months after the execution of [the] Agreement . . . ." But, Taxpayer did not do so. A review of publicly available records showed that Taxpayer remains the owner of that property. As such, Taxpayer is presumed to continue receiving the rent income from that property located in Indiana, including 2019.

Even if, for the sake of argument, assuming Taxpayer promptly relinquished his ownership of that Indiana property in September 2019, only payments made after September 2019 can arguably be excluded. As such, Taxpayer was required to report the income received from January through August 2019 on his IT-40PNR return.

In conclusion "[e]ach assessment and each tax year stands alone." Miller Brewing, 903 N.E.2d at 69. The Department is mindful that there is no one set of standards that will accurately indicate the person's intent in every relocation. Under Indiana law, mere ownership of Indiana property does not necessarily make that owner an Indiana resident for state income tax purposes. The Department thus incorrectly adjusted Taxpayer's filing on the ground that he was an Indiana resident for 2019.

Nevertheless, given the totality of the circumstances, Taxpayer's supporting documentation demonstrated that he had "income from real or tangible personal property located in this state." As such, that income was subject to Indiana income tax. Therefore, within 30 days from the issuance of this final determination, Taxpayer is required to amend his IT-40PNR return, reporting that income for Indiana income tax purposes. If Taxpayer fails to provide an amended 2019 IT-40PNR, the Department will be unable to determine the correct amount of Indiana tax which should have been paid for 2019 and will be unable to calculate a refund (if any) for that year.

Taxpayer's protest is sustained, in part, and respectfully denied, in part. Taxpayer's protest of the Department assessment is sustained. However, Taxpayer's protest of the refund denial is respectfully denied. For 2019, Taxpayer had Indiana income subject to Indiana income tax. Taxpayer is required to amend his IT-40PNR return, reporting his Indiana income within 30 days from the issuance of this final determination.

July 28, 2020