in-20250430-IR-045250191NRA: DEPARTMENT OF STATE REVENUE

DEPARTMENT OF STATE REVENUE FINAL ORDER DENYING REFUND: 03-20221709 Withholding Tax For the 2019 and 2020 Tax Years  HOLDING  Business asserted in its protest that payments to two employees were loans and not wages subject to withholding tax. Business failed to meet its burden of proof. ISSUE

I.     Withholding Tax – Audit

Authority:  IC 6-3-4-8; IC 6-8.1-5-1; IC 6-8.1-9-1; Indiana Dep’t of State Revenue v. Caterpillar, Inc., 15 N.E.3d 579 (Ind. 2014); Express Scripts Inc. v. Indiana Dep’t of State Revenue, 170 N.E.3d 273 (Ind. Tax Ct. 2021); Wendt LLP v. Indiana Dep’t of State Revenue, 977 N.E.2d 480 (Ind. Tax Ct. 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 Dep’t of State Revenue, 867 N.E.2d 289 (Ind. Tax Ct. 2007); 45 IAC 3.1-1-97. Taxpayer argues that the Department’s refund denial for withholding tax was incorrect as an overpayment exists for that tax period. STATEMENT OF FACTS Taxpayer is a limited liability company. The Indiana Department of Revenue (“Department”) audited Taxpayer for withholding tax for the years 2019 and 2020. As a result of that audit, the Taxpayer received a proposed assessment. Taxpayer filed a protest requesting an administrative hearing. A telephonic hearing was held regarding the matter. Additional facts will be provided as necessary.

I. Withholding Tax – Audit.

DISCUSSION Taxpayer protests a portion of the Department’s withholding audit—specifically, what Taxpayer characterizes as loans and not employee wages. Notices of proposed assessment issued by the Department are prima facie evidence that the Department’s assessments are correct; the burden of proving the assessment is incorrect rests with the taxpayer. IC 6-8.1-5-1(c); Lafayette Square Amoco, Inc. v. Indiana Dep’t of State Revenue, 867 N.E.2d 289, 292 (Ind. Tax Ct. 2007). Poorly developed or non-cogent arguments are subject to waiver. Scopelite v. Indiana Dep’t of Local Gov’t Fin., 939 N.E.2d 1138, 1145 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep’t of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012). A taxpayer, when submitting evidence as part of the taxpayer’s protest, needs to specify and explain the portions of the evidence that taxpayer believes to be relevant. As the Indiana Tax Court has previously noted (in the context of a summary judgment motion): “the Court will not consider” exhibits “on the off chance that it might find, on its own and undirected, some fact that supports” a claim, and “the Court is not required to search for specific facts on which” a party relies. Express Scripts Inc. v. Indiana Dep’t of State Revenue, 170 N.E.3d 273, 279 (Ind. Tax Ct. 2021). Also, when an agency is charged with enforcing a statute, courts defer to the agency’s reasonable interpretation of that statute “over an equally reasonable interpretation by another party.” Indiana Dep’t of State Rev. v. Caterpillar, Inc., 15 N.E.3d 579, 583 (Ind. 2014). An Indiana employer is required 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). Subsection (a)(1) specifically provides that the employer is liable for the amount that it was required to withhold. These statutory requirements are restated in 45 IAC 3.1-1-97, which also explains that “[i]n the case of delinquency or nonpayment of withholding tax, the employer is liable for such tax, penalties, and interest.” Id. The Department’s audit report states that Taxpayer’s business includes various components, including but not limited to catering, food items, and the selling of toiletry products. The audit report states that “[d]uring the audit period, the review of the taxpayer’s employee W-2s revealed that the taxpayer had failed to withhold the correct state and county income taxes for some its employees.” The audit report notes: Taxpayer, per the audit report, stated that “these payments were loans from the business,” but per the auditor report there were no notes to support this contention. The auditors then “requested … that any additional documentation regarding these payments be provided from the taxpayer proving that these payments were loans. However, the taxpayer was unable to provide any documentation proving that these were loans from [Taxpayer] to these employees.” The audit report further states: Turning to Taxpayer’s contentions, Taxpayer states in part that “[w]e are protesting $105,000 because this amount was loaned to [Employee C] and was not wages. The $105,000 is a loan, which is collecting interest, and is being repaid with the agreed upon payment schedule.” Similarly, Taxpayer protests regarding Employee E. In documentation sent subsequent to the hearing, Taxpayer stated for the years 2019 and 2020 regarding withholding tax, including county withholding taxes, that what was being protested were the “Loan not Wages” of Employees C and E. Taxpayer also states in documentation that it needs “clarification” regarding state and county tax for Employee M. Regarding the latter “clarification,” the Department notes Taxpayer failed to provide a developed and cogent argument, thus is denied and the issue will not be further addressed in this Finding. As for the purported loans to Employees C and E, Taxpayer’s argument, such as it was, is addressed below. Taxpayer is a limited liability company (“LLC”), and the president of the company and one of the shareholders/owners, stated that Employee C is her son and that in 2019 he wanted to purchase land that was for sale in order “for him to build a home on but would also be a source of hay for [Taxpayer’s] farm in the short-term.” To that end, she states she loaned Employee C the money with Employee C agreeing “to pay back the Line of Credit directly.” Taxpayer states that the payments were made “directly from his checking account to the line of credit," with Taxpayer stating that the payments were made varying in amounts and timing. Taxpayer’s owner then states in April of 2020 “in order to stop interest from accruing on the loan” that she “paid off the business loan of $98,500 with profits from the company.” The protest states that Employee C then paid to the owner (his parent) a payment of $1,000 in May of 2020, bringing it down to $97,800. Taxpayer then loaned Employee C additional money. Taxpayer states Employee C made payments from his account and concludes for Employee C that he “was not paid an extra $150,000 in salary and should not be charged withholding tax.” As for Employee E’s withholding issue, Employee E is also the son of the owner of Taxpayer. Taxpayer states that Employee E purchased a house and needed a new roof. The owner, in a document provided with the protests says that she “agreed to loan him $10,000 to put on the new roof,” and that she “transferred $10,000 from the business account ending in [] to [Employee E’s] account[,]” noting that “[i]n hindsight I should have transferred the $10,000 to my personal account as profits from the business and then transferred the money to [Employee E].” The owner states in December of 2020 “[Employee E] transferred $8,000 from his account ending in [] to my personal account ending in [],” and that an additional payment from Employee E was made in late December 2020 “from his account … to my personal account[.]” Taxpayer concludes that Employee E “was not paid an extra $10,000 in salary and should not be charged withholding tax.” The Department’s withholding tax audit covered the years 2019 and 2020, with the audit report issued to Taxpayer on August 16, 2022. Taxpayer provided copies of what are labeled as loan agreements for Employee C and Employee E. The purported agreements are both dated at the bottom of the pages with the same date—August 26, 2022. In other words, the purported loan agreements are dated after the audit report was issued. For example, the “loan agreement” for Employee E states: “If I do not pay the amount in full by 1/1/21, I will owe 0.5% interest per month on any remaining balance” yet it is dated August 26, 2022. And the “loan agreement” for Employee C, again dated August 26, 2022, contains future tense statements like “I will pay any and all interest payments and late payments….” The “loan agreements” and the other banking documents that Taxpayer provided do not establish that these were loans to Employee E and Employee C. See IC 6-8.1-5-1(c); Scopelite v. Indiana Dep’t of Local Gov’t Fin., 939 N.E.2d 1138, 1145 (Ind. Tax Ct. 2010); Wendt LLP v. Indiana Dep’t of State Revenue, 977 N.E.2d 480, 486 n.9 (Ind. Tax Ct. 2012); and Express Scripts Inc. v. Indiana Dep’t of State Revenue, 170 N.E.3d 273, 279 (Ind. Tax Ct. 2021). Additionally, the Department notes that amongst the business components of Taxpayer, banking (i.e., making loans), is not one of them. Thus, Taxpayer has not shown that the amounts at issue were not wages to employees. In conclusion, pursuant to IC 6-8.1-5-1(c) and the cited case law, Taxpayer has failed to establish that the Department’s proposed assessment for state and county withholding tax—which included penalty and interest—is incorrect. FINDING Taxpayer’s protest is denied. February 26, 2025 Replaces Finding Document at: New