DEPARTMENT OF STATE REVENUE
03-20231950.LOF
Letter of Findings: 03-20231950
Withholding Tax
For the Years 2020 and 2021
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 This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register.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.
HOLDING
Employer was responsible for the audit assessment because it failed to demonstrate that the assessment was incorrect.
ISSUE
I. Withholding Tax - Burden of Proof.
Taxpayer argues that the audit erred in assessing additional tax on wages paid to its employees.
STATEMENT OF FACTS
Taxpayer is a company doing business in Indiana and employs individuals to conduct its business. The Indiana Department of Revenue ("Department") audited Taxpayer's business records and tax returns for 2020 and 2021 ("Tax Years at Issue"). The Department found that Taxpayer failed to withhold tax on wages paid to its employees. The Department thus assessed Taxpayer additional tax plus penalty and interest.
Taxpayer protested the assessment. Taxpayer requested, and the Department granted, additional time for Taxpayer to submit supporting documents. Taxpayer did not provide any verifiable documents to support its protest before the agreed due date. A hearing was held. This Letter of Findings results. Additional facts will be provided as necessary.
I. Withholding Tax - Burden of Proof.
DISCUSSION
The Department's audit noted that during the Tax Years at Issue, Taxpayer employed several individuals who are Indiana residents; however, "state and county income taxes were not being withheld on [those] employees." Taxpayer disagreed. The issue is whether Taxpayer provided verifiable documents to demonstrate that the assessment was incorrect.
Indiana mandates that every person who is subject to a listed Indiana tax must keep books and records, including all source documents, "so that the [D]epartment can determine the amount, if any, of the person's liability for that tax by reviewing those books and records."
IC 6-8.1-5-4(a). Pursuant to
IC 6-8.1-5-1(c), 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.
Id. As such, 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).
Every employer is required to withhold taxes on wage payments to its employees pursuant to
IC 6-3-4-8, which states, in part, as follows:
(a) Except as provided in subsection (d), every employer making payments of wages subject to tax under this article, regardless of the place where such payment is made, who is required under the provisions of the Internal Revenue Code to withhold, collect, and pay over income tax on wages paid by such employer to such employee,
shall, at the time of payment of such wages, deduct and retain therefrom the amount prescribed in withholding instructions issued by the department. The department shall base its withholding instructions on the adjusted gross income tax rate for persons, on the total local income tax rate that the taxpayer is subject to under
IC 6-3.6, and on the total amount of exclusions the taxpayer is entitled to under
IC 6-3-1-3.5(a)(3) and
IC 6-3-1-3.5(a)(4). However, the withholding instructions on the adjusted gross income of a nonresident alien (as defined in Section 7701 of the Internal Revenue Code) are to be based on applying not more than one (1) withholding exclusion, regardless of the total number of exclusions that
IC 6-3-1-3.5(a)(3) and
IC 6-3-1-3.5(a)(4) permit the taxpayer to apply on the taxpayer's final return for the taxable year.
Such employer making payments of any wages:
(1) shall be liable to the state of Indiana for the payment of the tax required to be deducted and withheld under this section and shall not be liable to any individual for the amount deducted from the individual's wages and paid over in compliance or intended compliance with this section; and
(2)
shall make return of and payment to the department monthly of the amount of tax which under this article and
IC 6-3.6 the employer is required to withhold.
. . .
(g) The provisions of
IC 6-8.1 relating to additions to tax in case of delinquency and penalties shall apply to employers subject to the provisions of this section, and for these purposes any amount deducted or required to be deducted and remitted to the department under this section
shall be considered to be the tax of the employer, and with respect to such amount the employer shall be considered the taxpayer.
In the case of a corporate or partnership
employer, every officer, employee, or member of such employer, who, as such officer, employee, or member is under a duty to deduct and remit such taxes,
shall be personally liable for such taxes, penalties, and interest.
Accordingly,
IC 6-3-4-8(a) requires an employer to "withhold, collect, and pay over income tax on wages paid by such employer to such employee . . . [in] the amount prescribed in withholding instructions issued by the department."
IC 6-3-4-8(a)(1) provides that the employer is "liable to the state of Indiana for the payment of the tax
required to be deducted and withheld." (
Emphasis added).
IC 6-3-4-8(g) specifically provides that the employer is liable for the amount that it was required to withhold.
45 IAC 3.1-1-97 further explains in relevant part:
Employers who make payments of wages subject to the Adjusted Gross Income Tax Act, and who are required to withhold Federal taxes pursuant to the Internal Revenue Code (USC Title 26), are required to withhold from employees' wages Adjusted Gross and County Adjusted Gross Income Tax. (Emphasis added).
Employers are "withholding agents who are required to . . . make return of and payment to the Department . . . [of] tax due, for either County and State." Id. "All amounts deducted and withheld by an employer shall immediately upon deduction become the money of the State." Id. "In the case of delinquency or nonpayment of withholding tax, the employer is liable for such tax, penalties, and interest." Id.
In this instant case, throughout the protest process, Taxpayer protested the assessment of withholding tax. Taxpayer was granted additional time, but it failed to provide verifiable documents requested to support its protest before the agreed due date. As mentioned above, Taxpayer is a withholding agent for the state. Taxpayer is statutorily required to withhold and remit the tax - a trust tax - on wage paid its Indiana employees. Taxpayer failed to do so. In addition, Taxpayer is statutorily required to keep books and records, including all source documents. Taxpayer also failed to do so. Finally, Taxpayer is required to document and substantiate its protest. Taxpayer failed to do so as well. Thus, in the absence of other verifiable supporting documents, the Department is not able to agree that Taxpayer met its burden of proof as required under
IC 6-8.1-5-1(c).
FINDING
Taxpayer's protest is respectfully denied.
Replaces Finding Document at: New
Posted: 02/28/2024 by Legislative Services Agency
DIN: 20240228-IR-045240070NRA
Composed: May 20,2024 6:37:15AM EDT
A
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