in-20250917-IR-045250450NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20251190 County Withholding Income Tax For The Year 2021 HOLDING Married couple was responsible for additional county withholding income tax for 2021 because no local income tax was collected on half of Wife’s income. ISSUE

I. Indiana Income Tax – County Withholding.

Authority: IC 6-3-1-3.5; IC 6-3-2-1; IC 6-3-4-8; IC 6-3.6-2-15; IC 6-3.6-4-1; IC 6-3.6-8-3; IC 6-8.1-5-1; Dep’t of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Indiana Dep’t of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep’t of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); 45 IAC 3.1-1-97. Taxpayers protest that the Department’s assessment amount of additional county income tax was incorrect. STATEMENT OF FACTS Taxpayers are married Indiana residents. For tax year 2021, Taxpayers filed their Indiana Full-Year Resident Individual Income Tax Return (“Form IT-40”) as married filing jointly. After review, the Department issued a Notice of Proposed Assessment for state income tax and local income tax. Taxpayers disagreed with the assessment and submitted a protest to that effect. Taxpayers waived their right to an administrative hearing. This Letter of Findings is written in reliance on the information provided by the Taxpayers and the Department’s records. Additional facts will be provided as necessary.

I. Indiana Income Tax – County Withholding.

DISCUSSION Taxpayers filed their Form IT-40 for tax year 2021. The Department reviewed Taxpayers’ return and made adjustments that resulted in a proposed assessment. The Department’s assessment consisted of additional state income tax and local income tax. Taxpayers protested the assessment and provided an explanation for what they believed the issue was and provided documentation in support of their argument. The Department confirmed the assessment was based on withholding by Wife’s employer for state income tax and local income tax. 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.; See, e.g., Indiana Dep’t of State Revenue v. Rent-A-Center East, Inc., 963 N.E.2d 463, 466 (Ind. 2012); Lafayette Square Amoco, Inc. v. Indiana Dep’t of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). An assessment is 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.’” Dep’t of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). Consequently, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department’s position is wrong. 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). Indiana statute refers to the Internal Revenue Code to compute what is considered the resident-taxpayer’s Indiana income tax. IC 6-3-1-3.5(a) provides the starting point to determine the taxpayer’s taxable income and calculate what would be his or her Indiana income tax after applying certain additions and subtractions to that starting point, with modifications thereafter. 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.” IC 6-3-4-8 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: Thus, employers are “withholding agents . . . [required to] make return of and payment to the Department . . . 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. The regulation further states, “In the case of delinquency or nonpayment of withholding tax, the employer is liable for such tax, penalties, and interest.” Id. Employers are required to withhold taxes from wages that they pay to employees and send the withheld taxes to the Department. IC 6-3-4-8(a). Employees who have taxes withheld from their paychecks may claim that money as partial payment of taxes owed, and if more money has been withheld than the employee owed, the employee may claim a refund of the overpayment. IC 6-3-4-8(h). Indiana counties impose an income tax on all “local taxpayers.” IC 6-3.6-4-1. A local taxpayer is someone who, on January 1 of the tax year in question, lives in an Indiana county that imposes a local income tax. IC 6-3.6-2-15; IC 6-3.6-8-3(a). Taxpayers argue the Department’s assessment is incorrect. A review of the Department’s records and information provided by Taxpayers shows that Taxpayers received three W-2s for tax year 2021. Husband received one W-2, which properly withheld Indiana state and local income tax. Wife received two W-2s from her employer. One W-2 properly withheld Indiana state and local income tax. Wife’s second W-2 withheld Indiana state income tax, but not local income tax. As a result, Taxpayers had a shortfall in withholding taxes collected on their behalf. Since the correct amount of local income tax was not withheld by Wife’s employer, Taxpayers are liable for the remainder amount owed. Additionally, Taxpayers incorrectly believed that Wife’s second W-2 was a duplicate of the first. A closer examination shows it was not. Both of Wife’s W-2s were from the same employer. When the Department reviewed Taxpayers’ Form IT-40, it adjusted Taxpayers’ return to include the “second half” of Wife’s income. The Department issued an assessment for additional state income tax based on the “second half” of Wife’s income plus additional local income tax for the shortfall. A review of Taxpayers’ account shows that the Department incorrectly assessed additional state income taxes on the second portion of Wife’s income since her employer already withheld state income taxes on her behalf. However, Taxpayers still owe local income tax on half of Wife’s wages because the local income tax was not withheld by her employer. The Department will review Taxpayers’ account and issue a revised assessment. FINDING Taxpayers’ protest is denied. July 2, 2025 Replaces Finding Document: New