in-20250625-IR-045250309NRA:  DEPARTMENT OF STATE REVENUE

 DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20221314 Indiana Individual Income Tax For the Year 2021 HOLDING Married couple protested the Indiana Department of Revenue’s (“Department”) adjustments to county income tax credits on their 2021 Indiana income tax return. Taxpayers are entitled to claim a credit on Schedule 6 of their IT-40. ISSUE

I. Individual Income Tax – Local Taxes Credit.

Authority: IC 6-3-1-3.5; IC 6-3-2-1; IC 6-3-3-3; IC 6-3.6-8-6; IC 6-8.1-5-1; IC 6-8.1-5-2; Comptroller of Maryland v. Wynne, 135 S. Ct. 1787 (2015); Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Miller Brewing Co. v. Indiana Dep’t of State Revenue, 903 N.E.2d 64 (Ind. 2009); Scopelite v. Indiana Dep’t of Local Gov’t Fin., 939 N.E.2d 1138 (Ind. Tax Ct. 2010); 45 IAC 3.1-1-76; Income Tax Information Bulletin 28 (November 2016); Income Tax Information Bulletin 115 (November 2017). Taxpayers protest that they are entitled to county income tax credits for the tax year 2021. STATEMENT OF FACTS Taxpayers are a married couple. One of the spouse’s filed a Protest Submission Form (“Form”) protesting the Department’s denial of county income tax credits for the 2021 tax year. On the Form, Taxpayers checked the box indicating that they wanted a “Final determination without a hearing.” The latter states that a taxpayer waives the right to a hearing and “asks the Department to make its decision based on the written protest and documentation . . . .” Additional facts will be provided as necessary below.

I. Individual Income Tax – Local Taxes Credit.

DISCUSSION In a letter dated April 12, 2022, the Department stated that it had “reviewed [Taxpayers] tax return and identified inconsistencies during processing which has resulted in changes to [Taxpayers] filing.” Additionally, the letter specified the following: As a threshold issue, it is Taxpayer’s responsibility to establish that the existing tax assessment is incorrect. As stated in IC 6-8.1-5-1(c), “[t]he notice of proposed assessment is prima facie evidence that the [D]epartment’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). Indiana imposes an adjusted gross income tax on all residents. IC 6-3-2-1(a). Taxpayer’s Indiana income is determined by starting with the federal adjusted gross income and making certain adjustments. IC 6-3-1-3.5(a). IC 6-3-2-2(a) specifically outlines what is income derived from Indiana sources and subject to Indiana income tax. In addition, Indiana has entered reciprocal agreements with several states. Under the agreed reciprocity, Indiana resident-taxpayers who earn “income consisting of salaries, wages, and commissions from states [such as Kentucky] with which Indiana has a reciprocal tax agreement must report all such income as if it were from Indiana.” 45 IAC 3.1-1-76. Reciprocity, however, does not apply and automatically transfer the withholding tax credits between reciprocal states. Specifically, the same regulation provides, “Credit cannot be taken for any taxes withheld by or paid to any of these states in connection with salaries, wages, or commissions received from such states. If tax has been withheld by any of these states, a claim for refund should be filed with the state which withheld the taxes.” Id. (Emphasis added). Indiana tax law permits an Indiana resident-taxpayer to claim an income tax credit – not exceeding his or her Indiana income tax due – for the income taxes he or she is required to pay to other states. IC 6-3-3-3(a). Similarly, when the resident-taxpayer of an Indiana county is required to pay local income tax to a county of another state, the Indiana resident-taxpayer is entitled to a tax credit. IC 6-3.6-8-6 specifically provides: (Emphasis added). To claim this tax credit, the Department’s Income Tax Information Bulletin 28 (November 2016), 20161228 Ind. Reg. 045160560NRA, provides, in part, the following: Following the test established by the United States Supreme Court in Comptroller of Maryland v. Wynne, 135 S. Ct. 1787 (2015) and concluding that the Indiana tax system satisfies the constitutional requirements, Income Tax Information Bulletin 115 (November 2017), 20180131 Ind. Reg. 045180053NRA, explains, in part: Accordingly, the Indiana tax system encompasses different types of tax credits which include refundable tax credits and nonrefundable tax credits. Withholding tax credits are refundable while the tax credits for tax paid to other states or counties of other states are nonrefundable. When an Indiana resident-taxpayer who works in a county of another state which has a reciprocal agreement with Indiana (such as Louisville, Kentucky), the Indiana resident-taxpayer must report his or her W-2 income from Kentucky on the IT-40 return and vice versa. The Indiana resident-taxpayer may claim a tax credit for local income tax paid to a county of another state. Unlike the withholding tax credits on Schedule 5, the resident-taxpayer is required to claim this tax credit for income tax paid to a county of another state on Schedule 6 to his or her IT-40, and it is not refundable. This tax credit – to the extent of “[t]he amount of county tax due on the Indiana return” – is applied against the Indiana county income tax owed. That is, if the amount of income tax the Indiana resident-taxpayer paid to a county of another state is less than the county income tax the taxpayer would have owed under his or her Indiana return, the taxpayer owes the amount of the difference for the Indiana county income tax. If the amount of income tax the resident-taxpayer paid to a county of another state exceeds the local or county income tax he or she would have owed under his or her Indiana return, the resident-taxpayer owes no Indiana county income tax. However, the resident-taxpayer receives no refund of the overpayment from Indiana on that income of another state even when he or she pays more tax to the county of another state. With the foregoing in mind, we now turn to Taxpayers’ protest. Taxpayers state, in pertinent part, the following: Taxpayers in effect took the credit twice—on Schedule 5 and Schedule 6. The Department correctly denied Taxpayers regarding Schedule 5; however, regarding Schedule 6, Taxpayers have established that they are entitled to the credit. In the present case, the documentation establishes that Taxpayers are entitled to the credit for local taxes paid outside Indiana (i.e., Schedule 6 of the IT-40). FINDING Taxpayers’ protest is partially sustained. Taxpayers are entitled to the local taxes credit paid outside of Indiana (Schedule 6 of their IT-40). April 17, 2025 Replaces Finding Document: New