in-20250917-IR-045250459NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE SUPPLEMENTAL LETTER OF FINDINGS: 03-20242423 Withholding Tax For the 2020, 2021, and 2022 Tax Years HOLDING Business successfully established that it was operated solely by its two owners, and the Department’s assessment of withholding tax for two waiters and a cook was incorrect. ISSUE

I. Withholding Tax – Calculation and Assessment.

Authority: IC 6-3-4-8; IC 6-8.1-5-1; Indiana Dept. of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Scopelite v. Indiana Dep’t of Local Gov’t Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); Lafayette Square Amoco, Inc. v. Indiana Dept. of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); ; Letter of Findings 03-20242423 (March 7, 2025); United States Department of Treasury, Paycheck Protection Program (PPP) Information Sheet: Borrowers; United States Department of Treasury, Paycheck Protection Program How to Calculate Maximum Loan Amounts for First Draw PPP Loans and What Documentation to Provide – By Business Type. Taxpayer argues that the Department’s assessment of Indiana and county withholding tax was incorrect because Taxpayer has no paid employees. STATEMENT OF FACTS Taxpayer is an Indiana restaurant which provides its customers dining room and drive-through food services. The Indiana Department of Revenue (“Department”) conducted an audit of Taxpayer’s business records and documents. The audit resulted in assessments for additional withholding tax for tax years 2020, 2021, and 2022. Taxpayer disagreed with the assessments and submitted a protest to that effect. An administrative hearing was held, and the Department subsequently issued Letter of Findings 03-20242423 (March 7, 2025) denying Taxpayer. Taxpayer timely requested a rehearing, and the Department granted that request. A rehearing was held, and this Supplemental Letter of Findings results. Letter of Findings 01-20242422 and Letter of Findings 04-20252133 address the issues of individual income tax and sales tax, respectively, stemming from this audit. Additional facts will be provided as necessary.

I. Withholding Tax – Calculation and Assessment.

DISCUSSION The Department determined that Taxpayer owed additional withholding tax after an audit. Taxpayer submitted a protest and in support of that protest provided bank statements, copies of checks, Form 1099-Ks, a PPP Loan Application, and a local grant application. 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 the Department’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. Consequently, a taxpayer must provide documentation explaining and supporting that the Department’s position is wrong. See 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). 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). Non-cogent and poorly developed arguments are subject to waiver. Scopelite v. Indiana Dep’t of Local Gov’t Fin., 939 N.E.2d 1138, 1144-45 (Ind. Tax Ct. 2010). Under IC 6-3-4-8(a), any employer “making payments of wages subject to tax under [Art. 6-3] . . . is required . . . to withhold, collect, and pay over income tax on wages paid . . . [and] deduct and retain therefrom the amount prescribed in withholding instructions issued by the [D]epartment.” Per IC 6-8.1-5-1, “[i]f the department reasonably believes that a person has not reported the proper amount of tax due, the department shall make a proposed assessment of the amount of the unpaid tax on the basis of the best information available to the department.” After an audit of Taxpayer’s business, the Department determined that Taxpayer had employees for whom Taxpayer was obligated to withhold state and county income taxes. The Department then used the best information available to calculate a proposed assessment for unpaid state and county withholding tax. As explained in the Department’s audit report: The audit report also stated that there were “checks issued to individuals that listed date ranges on the [check] memo.” Further, during the tax years at issue, Taxpayer received funds as a result of a Paycheck Protection Program loan (“PPP loan”) as well as a grant from the Indiana municipality where the restaurant is located. The audit report stated that for the PPP loan “the loan application that was signed by the taxpayer stated that the restaurant had employees.” As to the municipality grant, “the taxpayer received county funds that were designated for paycheck protection.” During the hearing and rehearing, Taxpayer argued that it had no employees during the years at issue and therefore was under no obligation to withhold and collect taxes on employee wages. Taxpayer explained that owner’s husband has experienced medical issues for which he has had to undergo medical procedures. During those times, owner’s husband was unable to work at the restaurant. When necessary, owner’s children helped in the restaurant. All compensation given to owner’s children was accounted for. Taxpayer provided the Department with copies of all checks issued during 2020, 2021, and 2022. Upon a supplemental review of those checks, the Department cannot now agree with the audit report that there were “checks issued to individuals that listed date ranges on the [check] memo.” Rather, all the checks provided by Taxpayer and their corresponding payments reflect not a single check with date ranges in the memo for any of the tax years at issue. The checks issued by Taxpayer do not support the audit’s findings that Taxpayer had employees. In addition to the checks, the audit report relied on the PPP loan application and a grant Taxpayer received from an Indiana municipality as evidence that it had employees. The Department acknowledges that the PPP loan application includes the following language: To assist business in calculating payroll costs, the United States Department of Treasury issued Paycheck Protection Program (PPP) Information Sheet: Borrowers, wherein it states “[a]ll businesses – including . . . sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply.” United States Department of Treasury, Paycheck Protection Program (PPP) Information Sheet: Borrowers, https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf (last visited June 24, 2025). Additionally, it also notes that PPP loans can be used to cover payroll costs, interest on mortgage obligations, rent under lease agreements, and utilities. Id. Though the name of the program suggests that the funds are to be used solely to cover paychecks for employees, this is incorrect. The audit report also states that Taxpayer, in the PPP loan application, indicated that it had two employees in order to calculate the loan amount. Those two employees are owner and owner’s husband; Taxpayer had no other employees. The Department of Treasury’s guidance on calculating PPP loan amounts instructs self-employed individuals with no employees to calculate the average monthly net profit amount from the individual owner’s Form 1040 Schedule C and multiply that by 2.5. United States Department of Treasury, Paycheck Protection Program How to Calculate Maximum Loan Amounts for First Draw PPP Loans and What Documentation to Provide – By Business Type, https://www.sba.gov/sites/default/files/2021-03/HowtoCalculateFirstDrawLoanAmountsFAQs-3.12.21-508.pdf (last visited June 24, 2025). Taxpayer provided a copy of owner’s Form 1040 Schedule C which reflects that Taxpayer accurately calculated its maximum PPP loan amount using profit calculations from owner’s Schedule C because it does not incur payroll costs. Similarly, the loan application for the grant Taxpayer received from an Indiana municipality also reflects that Taxpayer has two full-time employees. Again, the employees referenced are owner and owner’s husband. Further, the application for the grant only requires the funds to be used for “operational costs,” and not for “paycheck protection” as the audit report suggests. In summary, Taxpayer applied for and received a PPP loan and a grant from an Indiana municipality. However, the application and disbursement of these loans is not indicative that Taxpayer had more than owner and owner’s husband operating as employees. When Taxpayer indicated it had two employees on the loan application, it is clear that Taxpayer’s intent was to account for owner and owner’s husband as those employees. Finally, the Department is unsure of the audit report’s mention of checks issued by Taxpayer to individuals with dates written in the memo line. A supplemental review of those checks revealed that no such checks exist. The Department erred when it assessed withholding tax. The Department will conduct a review of the withholding audit and make the necessary adjustments. FINDING Taxpayer’s protest is sustained to the extent described above. July 10, 2025 Replaces Finding Document: New