in-20250528-IR-045250241NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE LETTER OF FINDINGS: 01-20241077 Individual Income Tax For The Year 2022 HOLDING Individual established that the Department’s assessment for additional Indiana income tax was incorrect, and he was entitled to a refund of local income tax withheld in error. ISSUE

I.      Individual Income Tax – Income Tax for Nonresidents.

Authority: IC 6-3-1-3.5; IC 6-3-2-1; IC 6-3-2-2; IC 6-3.6-2-13; IC 6-3.6-4-1; IC 6-3.6-8-5; IC 6-8.1-5-1; Indiana Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); 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); 45 IAC 3.1-1-22; 45 IAC 3.1-1-22.5; 45 IAC 3.1-1-23; 45 IAC 3.1-4-3; 45 IAC 3.1-4-8. Taxpayer protests the Department’s reduction of his requested refund. STATEMENT OF FACTS Taxpayer was previously an Indiana resident and relocated to North Carolina in 2021. During the relevant tax year, Taxpayer was employed and worked exclusively in the state of North Carolina, but Taxpayer’s employer failed to update his address for withholding purposes. As a result, Taxpayer’s employer withheld Indiana local income tax for some of the 2022 tax year. Taxpayer subsequently filed an Indiana Part-Year or Full-Year Nonresident Individual Income Tax Return (“IT-40PNR”) reporting $0 of Indiana income and requested a refund of the local income tax withheld and remitted to Indiana in error. The Indiana Department of Revenue (“Department”) reviewed the return and made adjustments, which resulted in Taxpayer’s requested refund being reduced to $0. Additionally, the Department determined that Taxpayer owed Indiana state income tax and issued a corresponding assessment including penalties and interest. Taxpayer disagreed with the Department’s adjustments and related assessment and submitted a protest to that effect. An administrative hearing was held, and this Letter of Findings results. Additional facts will be provided as necessary.

I.      Individual Income Tax – Income Tax for Nonresidents.

DISCUSSION The Department, after reviewing Taxpayer’s IT-40PNR, determined that Taxpayer underreported his Indiana income which resulted in no refund due and an assessment for Indiana income tax. Taxpayer disagreed and submitted a protest. In support of his protest, Taxpayer provided a letter explaining his protest, his 2022 North Carolina tax return, and a letter from his employer. Taxpayer contends that his employer failed to update his W-2 after he moved to North Carolina and thus erroneously withheld and remitted local income taxes to an Indiana county. 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.’”  Indiana Dept. of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). 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). IC 6-3-2-2(a) specifically outlines what is income derived from Indiana sources and subject to Indiana income tax. For Indiana income tax purposes, the presumption is that taxpayers file their federal income tax returns as required pursuant to the Internal Revenue Code. Thus, to efficiently and effectively compute what is considered the taxpayers’ Indiana income tax, the Indiana statute refers to the Internal Revenue Code. IC 6-3-1-3.5(a) provides the starting point to determine the taxpayers’ taxable income and to calculate what would be their Indiana income tax after applying certain additions and subtractions to that starting point. In terms of county taxes, such as local income taxes, IC 6-3.6-4-1 provides that, “a tax is imposed on the adjusted gross income of local taxpayers at a tax rate that is a sum of the tax rates imposed by the county’s adopting body and in effect in the county.” Pursuant to IC 6-3.6-2-13, a local taxpayer is defined as: Although Indiana has entered into reciprocal agreements with several states, county taxes are excluded from reciprocity agreements. IC 6-3.6-8-5(b). Under Indiana law, income subject to local income tax (“LIT”) is, “all income derived from an Indiana county in which the principal place of business or employment is located…” 45 IAC 3.1-4-3(c). 45 IAC 3.1-4-8 defines an individual’s principal place of business or employment as “the county where the taxpayer receives the greatest percentage of his or her gross income from salaries, wages, commissions, fees, and similar income.” 45 IAC 3.1-1-23 explains how residency affects taxability. In the case of a taxpayer moving from Indiana, it notes: Any person who, on or before the last day of the taxable year, changes his residence or domicile from Indiana to a place without Indiana, with the intent of abiding permanently without Indiana, is subject to adjusted gross income tax on all taxable income earned while an Indiana resident. Indiana will not tax income of a taxpayer who moves from Indiana and becomes an actual domiciliary of another state or country except that income received from Indiana sources will continue to be taxable. Domicile is further explained in 45 IAC 3.1-1-22, which states as follows: (a) “Domicile” means a person’s domicile is the state or other place in which a person intends to reside permanently or indefinitely and to return to whenever he or she leaves the place. A person has only one (1) domicile at a given time even though that person may be statutorily a resident of more than one (1) state. A person is domiciled in Indiana if he or she intends to reside in Indiana permanently or indefinitely and to return to Indiana whenever he or she leaves the state. (b) A person is domiciled in a state or other place until such time as he or she voluntarily takes affirmative action to become domiciled in another place. Once a person is domiciled in Indiana, that status is retained until such time as he or she voluntarily takes positive action to become domiciled in another state or country and abandons the Indiana domicile by relinquishing the rights and privileges of residency in Indiana. (c) In order to establish a new domicile, the person must be physically present at a place, and must have the simultaneous intent of establishing a permanent place of residence at that place. The intent to change one’s domicile must be present and fixed and not dependent upon the happening of some future or contingent event. It is not necessary that the person intend to remain there until death; however, if the person, at the time of moving to the new location, has definite plans to leave that new location, then no new domicile has been established. (d) There is no one (1) set of standards that will accurately indicate the person’s intent in every relocation. The determination must be made on the totality of facts, supported by objective evidence, in each individual case. 45 IAC 3.1-1-22.5 further outlines the factors in determining a person’s domicile, as follows: (a) The [D]epartment may require documentation from a person to evaluate domicile. (b) The one hundred eighty-three (183) day and permanent place of residence threshold in IC [§] 6-3-1-12(b) and [45 IAC 3.1-1-21] is not a test for domicile. (c) A person is presumed not to have abandoned their state of domicile and established a new state or other place of domicile in a given year if, during that year, the person maintained a permanent place of residence (whether as an owner, renter, or other occupier of the residence) in that state and the person did more than one of the following:  (1) Claimed a homestead credit or exemption or a military tax exemption on a home in that state; (2) Voted in that state; (3) Occupied a permanent place of residence in that state or other place of domicile for more days of the taxable year than in any other single state; (4) Claimed a benefit on the federal income tax return based upon that state being the principal place of residence; or (5) Had a place of employment or business in that state. A person may rebut this presumption through the presentation of substantial contrary evidence.  (d) If a person’s domicile is not resolved by subsection (c), the Department may consider additional relevant factors to determine the person’s state or other place of domicile, including the state or other place where the person: (1) maintained a driver’s license or government issued identification card; (2) was registered to vote; (3) registered a vehicle; (4) claimed as dependents immediate family members who relied, in whole or in part, on the taxpayer for their support; (5) assigned or maintained a mailing address; (6) maintained bank accounts; (7) maintained active membership in a religious, social, cultural or professional organization; (8) received professional services; and (9) kept valuables or family heirlooms. This list of additional, relevant factors is not exclusive. Thus, a new domicile is not necessarily created when an individual moves to a place outside of Indiana. Instead, the individual must move to the new location and have an intent to remain there indefinitely. Taxpayer relocated to North Carolina in 2021. He continued working for the same employer but at its facility located in North Carolina until April 2022. In April 2022, Taxpayer began working for another North Carolina employer and remained employed there through the rest of the 2022 tax year. Taxpayer’s original employer failed to change his Indiana address and continued withholding local income tax for an Indiana county.  The issue in this case is two-fold. First, is whether Taxpayer established a new domicile in North Carolina, making him no longer subject to Indiana state income tax. Second, is whether Taxpayer is entitled a refund of the Indiana local income tax that he asserts was withheld in error by his employer. When Taxpayer filed a 2022 IT-40 PNR, he did so in order to request a refund of the local income tax withheld in error. After reviewing his IT-40PNR, the Department determined that not only was he not entitled to a refund, but he also owed Indiana state income tax on the income he received between January and April 2022. This was incorrect. Taxpayer has presented documentation sufficient to support his claim that he was domiciled in North Carolina for the 2022 tax year. He maintained a North Carolina mailing address, had a place of employment in North Carolina, and filed taxes as a North Carolina resident. Taxpayer was no longer domiciled or employed in Indiana during 2022, and his income was therefore not subject to Indiana state income tax. Turning to the issue of local income tax, Taxpayer provided a signed statement from his employer confirming that he physically worked in and earned income from a North Carolina source. Taxpayer does not meet the definition of a local taxpayer under IC 6-3.6-2-13. Additionally, Taxpayer’s principal place of employment was in North Carolina and not Indiana. Taxpayer has carried his burden of showing that his employer withheld Indiana local income tax in error and he was entitled to a refund of that tax. The Department is mindful that, under 45 IAC 3.1-1-22(d), there is no one set of standards that will accurately indicate a person’s intent to relocate. Given the totality of the circumstances, with the documents provided the Department agrees that Taxpayer has met the burden of proof. Therefore, given a “case by case” review of Taxpayer’s facts, documentation, and circumstances, Taxpayer’s income earned during 2022 was not subject to Indiana state income tax, and he is entitled to a full refund of local income tax withheld in error as originally requested. FINDING Taxpayer’s protest is sustained. March 12, 2025 Replaces Finding Document at: New