An Indiana couple that moved to Florida in 2008 is not required to pay additional Indiana income tax on income earned while remotely working for an Indiana company after moving south, the Indiana Tax Court ruled Tuesday.
In 1999, William Schmidt started CopyCo, an Indiana company that sold and serviced copy machines and similar office machines. Schmidt and his wife, Danielle, sold CopyCo to Global Imaging Systems in 2006, and Schmidt continued to work for Global as a core president.
Xerox then acquired Global in 2007 and continued Indiana business operations. Schmidt remained a Global employee and helped with the transition to Xerox and to groom his friend, John Drake, to take over as president.
Meanwhile, the Schmidts purchased a house in Florida in 2008 and began the process of moving their sentimental items to the new home. They also took one of their cars to Florida, but left their household furniture and three other vehicles behind at their previous home in Carmel.
Once moved, the couple retitled their car in Florida, obtained Florida driver’s licenses, joined a Florida country club and registered to vote in their new state. The Schmidts also requested the Hamilton County auditor remove the homestead deduction from their Carmel property, and beginning in 2009, the couple received a homestead credit on their Florida house.
Meanwhile, Schmidt continued to work for Global from his home in Florida from 2008 to 2010. But when Drake died in 2011, Schmidt returned to Indiana to take over his duties on a six-month interim basis. Schmidt hired John Bixby to take Drake’s place, and Schmidt continued to work for Global for the sole purpose of advising Bixby, if necessary. He returned to Indiana twice for that reason in 2012, then retired at the end of the year.
During the 2008, 2011 and 2012 tax years, the Schmidts filed Indiana part-year or full-year nonresident individual income tax returns, but did not file Indiana income tax returns in 2009 or 2010. However, in 2011 and 2012, the Indiana Department of State Revenue issued proposed assessments against them for AGIT liabilities for 2009 and 2010.
Also in 2012, Schmidt received a stock grant award from Global, which withheld more than $2,500 in Indiana income tax on the award. Schmidt filed a claim for a refund on the withheld amount, but the department denied the claim and assessed additional income tax and penalties for Schmidt’s temporary work in Indiana that year.
The Schmidts appealed and challenged the proposed assessment issued in 2009, 2010 and 2012 in the case of William E. Schmidt, Jr. and Danielle Schmidt v. Indiana Department of State Revenue, 49T10-1306-TA-00055. On appeal, the couple argued they were not Indiana residents, nor non-residents who derived adjusted gross income from Indiana sources in 2009 and 2010, and also that any income derived from Indiana sources in 2012 was de minimus.
Indiana Tax Court Judge Martha Blood Wentworth agreed, writing in a Wednesday opinion that the Schmidts proved they intended to abandon their Indiana domicile and acquire new domicile in Florida, as is required by the Indiana Supreme Court. Wentworth pointed to evidence such as the couple’s purchase of a Florida home and their surrender of their Indiana driver’s licenses.
Further, because unrebutted evidence proved Schmidt worked for CopyCo via telephone in 2009 and 2010, and not while physically present in the Hoosier state, the department incorrectly determined that Schmidt received Indiana source income, Wentworth said. Finally, Wentworth determined that “the eight hours that Mr. Schmidt worked over the course of 2012 are so minimal that no Indiana income tax is owed.”
Thus, the judge determined Schmidt was entitled to his requested refund, but was not liable for Indiana AGIT, penalties or interest during the years at issue. The departments proposed assessments were reversed.