Monday, July 14, 2014

Revenue Finds Taxpayer Failed to Meet Burden of Proving Withholding Tax Was Paid for Employees

Excerpts of Revenue's Determination follow:

Taxpayer is an Indiana business. As the result of an audit, the Indiana Department of Revenue ("Department") determined that Taxpayer had not remitted withholding tax for three employees during the tax year 2011. The Department therefore issued proposed assessments for withholding tax and interest for that year.

Taxpayer protests that it does not owe additional withholding tax for the tax year 2011. Taxpayer states that it used a payroll service to perform its withholding duties and that the W-2s for the employees in question show that income tax was withheld as required. Taxpayer notes that two of the three employees worked for Taxpayer approximately one day and that the amount of wages and related tax was therefore minimal. The Department notes that the burden of proving a proposed assessment wrong rests with the person against whom the proposed assessment is made, as provided by IC § 6-8.1-5-1(c).

The relevant regulation is 45 IAC 3.1-1-97, which states in relevant part:

Employers who make payments of wages subject to the Adjusted Gross Income Tax Act, and who are required to withhold Federal taxes pursuant to the Internal Revenue Code (USC Title 26), are required to withhold from employees' wages Adjusted Gross and County Adjusted Gross Income Tax.

Therefore, employers such as Taxpayer are required to withhold adjusted gross and county adjusted gross income tax from payments of wages made to its employees.

In support of its protest, Taxpayer provided copies of the W-2 forms for the three employees. Those forms show that Indiana tax was withheld for one employee. Also, Taxpayer provided printouts showing that the payroll company which Taxpayer employed did make payments to the Department. Taxpayer's position is that the W-2 forms establish that tax was withheld and that the payroll company printouts show that the tax was then remitted to the Department.

The Department notes that the payroll company printouts contain general deposit information and do not establish that what was remitted by the payroll company was the withholding tax for the three employees at issue. As previously mentioned, IC § 6-8.1-5-1(c) provides that the burden of proving a proposed assessment wrong rests with the person against whom the proposed assessment is made. The documentation submitted in the course of the protest process does not establish that the tax was withheld and remitted for these three employees. Taxpayer has not met the burden imposed by IC § 6-8.1-5-1(c).