in-20251126-IR-045250664NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 03-20251417 Withholding Tax For The Years 2021, 2022, and 2023 HOLDING The Department agreed that Company met its burden of establishing that the negligence penalty should be abated. The Department disagrees that the interest on the assessed withholding taxes should be waived. ISSUE

I. Tax Administration – Penalties and Interest.

Authority: IC 6-8.1-5-1; IC 6-8.1-10-2.1; 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); Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); 45 IAC 15-11-2. Taxpayer protests the assessment of penalties and interest. STATEMENT OF FACTS Taxpayer is an Indiana company. The Indiana Department of Revenue (“Department”) conducted an audit of tax years 2021, 2022, and 2023. As a result of the audit, the Department assessed additional withholding tax for each relevant tax year. The assessments also included associated penalties and interest. Taxpayer agreed with the majority of adjustments from the audit, including the amount of withholding tax assessed. Taxpayer paid the assessed withholding tax. Taxpayer is only protesting the assessment of penalties and interest related to each tax year. Taxpayer requested resolution without a hearing. This Letter of Findings results. Additional facts will be provided as necessary.

I. Tax Administration – Penalties and Interest.

DISCUSSION In the course of creating its assessment, the Department imposed negligence penalty and interest. Taxpayer protests the imposition of both penalty and interest, stating that it did act in a reasonable manner in attempting to comply with its tax duties. As a threshold issue, it is the Taxpayer’s responsibility to establish that the existing tax assessment is incorrect. A proposed assessment is prima facie evidence that DOR’s claim for the unpaid tax is valid. IC 6-8.1-5-1(c). The burden of proving that the proposed assessment is wrong rests with the person against whom the proposed assessment is made. Id.; See e.g., 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). An assessment, including Taxpayer’s penalty assessment, is therefore presumed valid. A taxpayer must provide documentation explaining and supporting that the Department’s position is wrong. Additionally, “[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). IC 6-8.1-10-2.1(a)(3) requires the Department to impose a negligence penalty if a taxpayer incurs a tax deficiency after an examination by the Department. The penalty is ten percent of the amount of the deficiency as determined by the Department. IC 6-8.1-10-2.1(b)(4). However, if a taxpayer can show that failure to pay the deficiency determined by the Department was due to reasonable cause and not due to willful neglect, the penalty can be waived by the Department. IC 6-8.1-10-2.1(d). Reasonable cause is defined by 45 IAC 15-11-2(b) as: Taxpayer explained the events surrounding the audit and resulting assessments. During the audit period, Taxpayer withheld tax incorrectly on behalf of its employees due to a misunderstanding of the withholding rules based on an employee’s state of residence. Taxpayer employed both Indiana and Kentucky residents as employees. Further, Taxpayer’s payroll was completed by a long-time employee. After the employee left the company, Taxpayer utilized a third-party payroll service to process its payroll. When errors were discovered during the audit review, Taxpayer shifted payroll responsibilities back to an internal employee. Taxpayer, with the internal employee’s assistance, has made a concerted effort to correct the previous errors and maintain correct withholding accounts since the audit was finalized. Here, Taxpayer erred in originally determining its withholding tax liability. However, Taxpayer’s actions do not constitute “willful neglect” as outlined in IC 6-8.1-10-2.1(d). Accounting for these circumstances, Taxpayer did not act negligently as defined in 45 IAC 15-11-2(b). Taxpayer has already paid the withholding tax assessed to it by the Department, and Taxpayer has a history of compliance with the Department. Considering Taxpayer’s situation, the Department agrees that the penalties for the tax years of 2021, 2022, and 2023 should be waived. However, the interest assessed by the Department cannot be waived in these circumstances under IC 6-8.1-10(e). FINDING Taxpayer’s protest is sustained in part and denied in part. June 25, 2025 Replaces Finding Document: New