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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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

Businesses demonstrated that penalty abatement should be granted and that no additional withholding tax was owed.

I. Withholding Tax - Calculations.

Authority: IC § 6-3-4-8.2; IC § 6-8.1-5-1; 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).

Taxpayers protest proposed assessments for additional withholding tax.

II. Tax Administration - Penalty.

Authority: IC § 6-8.1-10-2.1; 45 IAC 15-11-2.

Taxpayers request that the Department abate the assessed penalty.

Taxpayers are related casino businesses that collected and remitted Indiana withholding tax on gamblers' winnings during the tax year. Taxpayers filed their Form WH-3s late, showing more tax owed than was paid by Taxpayers throughout 2019. The Indiana Department of Revenue ("Department") issued assessments for the remaining tax due, according to the WH-3s, plus penalties and interest. Taxpayers filed a protest of these assessments and an administrative hearing was held. This Letter of Findings results. Additional facts will be provided as necessary.

I. Withholding Tax - Calculations.

Taxpayers protest the assessment of additional withholding tax and claim that their WH-3s understated the amount of tax paid, arguing that their originally filed WH-1s were correct.

As a threshold issue, it is the 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 shall be entitled to deference.

IC § 6-3-4-8.2 establishes the requirement for casinos to withhold tax from gambler winnings as follows:

Next, the Department refers to IC § 6-8.1-5-1(b), which states:

Thus, if the Department reasonably believes that a taxpayer has not paid the proper amount of tax, the Department shall issue an assessment for unpaid tax on the basis of the best information available.

In support of its protest, Taxpayers provided documentation in the form of multiple spreadsheets and payment vouchers. These documents show specific transactions in detail which were mistakenly excluded from the WH-3s. The tax paid on these transactions account for the discrepancy between the WH-3s and the WH-1s. The information provided during the protest process demonstrates that all taxes owed have already been paid. Therefore, the Taxpayers have met their burden to prove the proposed assessments are incorrect.

Taxpayers' protest is sustained.

II. Tax Administration - Penalty.

Taxpayers request that the Department abate the penalty assessments because Taxpayers acted like ordinary and reasonable taxpayers in their attempt to file and remit.

IC § 6-8.1-10-2.1 penalizes a taxpayer who fails to file or remit the correct amount of tax due on or before the due date of the return or payment. Subsection d of the statute states that "[i]f a person subject to the penalty imposed under this section can show that the failure . . . was due to reasonable cause and not due to willful neglect, the department shall waive the penalty." IC § 6-8.1-10-2.1(d).

The Department shall abate the penalty when a taxpayer "affirmatively establishes that the failure to . . . pay the full amount of tax due . . . or pay a deficiency was due to reasonable cause and not due to negligence." 45 IAC 15-11-2(c); see also IC § 6-8.1-10-2.1(d).

Finally, in order to establish reasonable cause, the taxpayer is required to demonstrate that it "exercised ordinary business care and prudence in carrying out or failing to carry out a duty giving rise to the penalty imposed . . . ." 45 IAC 15-11-2(c). The Department is mindful that "[r]easonable cause is a fact sensitive question and thus will be dealt with according to the particular facts and circumstances of each case." Id. In determining whether the taxpayer has reasonable cause, the Department is required to consider the following factors:

Taxpayers, in this instance, generally have a good history of compliance. Taxpayers explained that the person at their companies responsible for filing WH-3s left abruptly and without notice, resulting in a delay to their filing process. Moreover, Taxpayers explained that they have since implemented new procedures to add redundancy to their filing responsibilities to ensure this situation does not reoccur. Therefore, given the totality of the circumstances, the Department is prepared to abate the penalty.

Taxpayers' protest is granted.

Taxpayers' protests on both Issue I and Issue II are granted. Taxpayers' assessments will be eliminated, pursuant to this Letter.

June 30, 2021