20160928-IR-045160401NRA Letter of Findings: 01-20160223 Indiana Individual Income Tax For the Year 2011

DEPARTMENT OF STATE REVENUE

01-20160223.LOF

Letter of Findings: 01-20160223 Indiana Individual Income Tax For the Year 2011

NOTICE: IC § 6-8.1-3-3.5 and IC § 4-22-7-7 require the publication of this document in the Indiana Register. This document provides the general public with information about the Department's official position concerning a specific set of facts and issues. This document is effective on its date of publication and remains in effect until the date it is superseded or deleted by the publication of another document in the Indiana Register. The "Holding" section of this document is provided for the convenience of the reader and is not part of the analysis contained in this Letter of Findings.

HOLDING

Former Indiana Resident, now living and working in New Jersey, provided sufficient documentation to establish that he had the requisite intent to abandon his Indiana residency and establish a residency in another state; Former Indiana Resident was not required to file a 2011 Indiana income tax return as either a full-year or part-year resident of Indiana.

ISSUE

I. Individual Income Tax - Residency.

Authority: IC § 6-1.1-12-37(a)(2); IC § 6-3-2-1(a); IC § 6-3-1-12; IC § 6-8.1-5-1(c); Dept. 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); State Election Board v. Bayh, 521 N.E.2d 1313 (Ind. 1988); In the Matter of Evrard, 333 N.E.2d 765 (Ind. 1975); Board of Medical Registration and Examination v. Turner, 168 N.E.2d 193 (Ind. 1960); Croop v. Walton, 157 N.E. 275 (Ind. 1927); Culbertson v. Bd. Of Comm'rs of Floyd County, 52 Ind. 361 (1876); 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 3.1-1-22.

Taxpayer argues that he was not an Indiana resident during 2011 and was not required to file a 2011 Indiana tax return as a full-year or part-year resident of this state.

STATEMENT OF FACTS

Taxpayer formerly lived in Indiana and previously filed Indiana income tax returns as a full-year Indiana resident.

In August 2015, the Indiana Department of Revenue ("Department") sent Taxpayer a letter stating that "we have determined that you have unreported income for tax year 2011." The letter stated that taxpayer was required to file an Indiana income tax return or "[s]end a letter that explains why you were not required to file a 2011 Indiana income tax return" along with "supporting documentation with that explanation."

The Department issued Taxpayer proposed assessments of additional income tax based on the "best information available" to the Department.

Taxpayer sent documentation to the Department in response to the Department's letter. However, the Department responded in a January 2016 letter which concluded that "the supporting documents are not acceptable proof of out of state domicile."

Taxpayer disagreed with the Department's decision leading to the proposed assessment and submitted a protest to that effect. An administrative hearing was conducted during which Taxpayer's representative explained the basis for the protest. This Letter of Findings results.

I. Individual Income Tax - Residency.

DISCUSSION

The issue is whether Taxpayer was a resident of Indiana during 2011 and required to file an Indiana income tax return that year.

Taxpayer states that he moved to New Jersey as a result of a transfer by his employer and that he now has a full-year residence in that state. Taxpayer concludes that he has no remaining ties with Indiana such that he would be required to file Indiana income tax returns as either a full or part-year resident of this state.

Tax assessments are prima facie evidence that the Department's claim for the unpaid tax is valid, and each taxpayer bears the burden of proving that any assessment is incorrect. IC § 6-8.1-5-1(c); 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). Thus, a taxpayer is required to provide documentation explaining and supporting his or her challenge that the Department's position is wrong. Poorly developed and 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). In reviewing a taxpayer's argument, the Indiana Supreme Court has held, that when it examines a statute that an agency is "charged with enforcing . . . we 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 income tax on "the adjusted gross income of every resident person . . . ." IC § 6-3-2-1(a). For income tax purposes, "The term 'resident' includes (a) any individual who was domiciled in this state during the taxable year, or (b) any individual who maintains a permanent place of residence in this state and spends more than one hundred eighty-three (183) days of the taxable year within this state . . . ." IC § 6-3-1-12.

To establish a domicile, a taxpayer "must be physically present at a place, and must have the simultaneous intent of establishing a home at that place." 45 IAC 3.1-1-22. For income tax purposes, "a person has only one domicile at a given time even though that person maintains more than one residence at that time." Id. Additionally, "Once a domicile has been established, it remains until the conditions necessary for a change of domicile occur." Id. "To effect a change of domicile, there must be an abandonment of the first domicile with an intention not to return to it, and there must be a new domicile acquired by residence elsewhere with an intention of residing there permanently, or at least indefinitely." Croop v. Walton, 157 N.E. 275, 278 (Ind. 1927).

In State Election Board v. Bayh, 521 N.E.2d 1313 (Ind. 1988), the Indiana Supreme Court considered the standard by which a "domicile" is established. The court determined that Mr. Bayh met the residency requirement for the office of Governor because Mr. Bayh's domicile remained in Indiana even though he moved to different states for various reasons for many years. Specifically, the court stated, in relevant part, that:

Once acquired, domicile is presumed to continue because "every man has a residence somewhere, and . . . he does not lose the one until he has gained one in another place." Establishing a new residence or domicile terminates the former domicile. A change of domicile requires an actual moving with an intent to go to a given place and remain there. "It must be an intention coupled with acts evidencing that intention to make the new domicile a home in fact . . . . [T]here must be the intention to abandon the old domicile; the intention to acquire a new one; and residence in the new place in order to accomplish a change of domicile." A person who leaves his place of residence temporarily, but with the intention of returning, has not lost his original residence. Id. 1317 (Internal citations omitted).

The Supreme Court concluded that:

Residency requires a definite intention and "evidence of acts undertaken in furtherance of the requisite intent, which makes the intent manifest and believable." A self-serving statement of intent is not sufficient to find that a new residence has been established. Intent and conduct must converge to establish a new domicile. Id. at 1318 (Internal citations omitted).

In an earlier case, the Indiana Supreme Court stated that in order to establish a new residence, a taxpayer "must show . . . evidence of acts undertaken in furtherance of the requisite intent, which make that intent manifest and believable." In the Matter of Evrard, 333 N.E.2d 765, 768 (Ind. 1975).

The Department's regulation provides that "[t]here is no one set of standards that will accurately indicate the person's intent in every relocation." 45 IAC 3.1-1-22. Instead, the determination is made on a case by case basis. Id. Facts to be considered include:

(1) Purchasing or renting residential property

(2) Registering to vote

(3) Seeking elective office

(4) Filing a resident state income tax return or complying with the homestead laws of a state

(5) Receiving public assistance

(6) Titling and registering a motor vehicle

(7) Preparing a new last will and testament which includes the state of domicile. Id.

In addition, courts have considered a taxpayer's contemporaneous declarations identifying that taxpayer's "home;" insurance policies, mortgages, contracts or other instruments indicating the taxpayer's home; and membership in clubs, churches, or other social groups in a place. Croop, 157 N.E. at 278-79. Finally, courts have considered the location of taxpayer's household goods and mailing address. Board of Medical Registration and Examination v. Turner, 168 N.E.2d 193, 197 (Ind. 1960); See also, Culbertson v. Bd. Of Comm'rs of Floyd County, 52 Ind. 361 (1876). However, a taxpayer "seeking to establish his claim of exemption from taxation on the ground of nonresidence is not required to show that his property was assessed elsewhere." Croop, 157 N.E. at 276.

In order to change one's domicile from Indiana to an out-of-state location, the law requires the "intent of establishing a home at that place," 45 IAC 3.1-1-22, along with "acts evidencing [an] intention to make the new domicile a home in fact . . . ." Bayh, 521 N.E.2d at 1317.

However, the law also requires a simultaneous manifestation of an intent to abandon the Indiana domicile. Id. As the law states, "[A] person has only one domicile at a given time . . . ." 45 IAC 3.1-1-22. Significantly, Taxpayer owns an Indiana home and benefited from a Homestead Credit claimed on that home. In doing so, Taxpayer necessarily verified that the Indiana home was his "principal place of residence" and, by doing so, took advantage of the typically significant tax advantage associated with claiming the credit. IC § 6-1.1-12-37(a)(2).

Taxpayer provided a copy both his 2011 federal and New Jersey income tax returns both of which list a New Jersey address. In addition, Taxpayer provided evidence of a rental agreement for a home with a New Jersey address. Taxpayer provided a New Jersey "Abstract of Driver History Record." Taxpayer provided copies of his 2011 W-2 forms listing his New Jersey Address. Finally, Taxpayer provided a copy of his New Jersey driver's license issued October 2010.

There is nothing in the Department's records which indicates that Taxpayer retained a home in Indiana or that he claimed a Homestead Deduction on any property in this state.

Evaluating the documentation on a "case by case basis" in order to determine Taxpayer's "requisite intent," Taxpayer established that he intended to abandon his Indiana domicile, and manifested "intent and conduct . . . to establish a new domicile." As explained in 45 IAC 3.1-1-22, "a person can only have one domicile at a given time . . . ." In this case, Taxpayer established that his 2011 domicile was in New Jersey.

Taxpayer was not required to file 2011 Indiana income tax return as either a full-year or part-year resident of this state.

FINDING

Taxpayer's protest is sustained.

Posted: 09/28/2016 by Legislative Services Agency

DIN: 20160928-IR-045160401NRA

Composed: Nov 01,2016 2:18:13AM EDT

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