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Schmidt v. Indiana Department of State Revenue

Tax Court of Indiana

August 15, 2017





          WENTWORTH, J.

         William E. Schmidt, Jr. and his wife Danielle challenge the Indiana Department of State Revenue's assessments of adjusted gross income tax (AGIT) for the 2009, 2010, and 2012 tax years. The Schmidts assert that they were not subject to Indiana's AGIT because they were neither Indiana residents nor nonresidents who received Indiana source income during those years. The Court agrees.


         Mrs. Schmidt was born in Indiana, and Mr. Schmidt moved to Fort Wayne, Indiana at the age of sixteen. (Trial Tr. at 98-99, 103.) The Schmidts lived in various Indiana locations, and in 2005 they built a house and moved to Carmel, Indiana. (Trial Tr. at 19.) In mid-1999, Mr. Schmidt started an Indiana company, CopyCo, that sold and serviced copy machines, printers, fax machines, and typewriters. (Trial Tr. at 19, 100.) In August or September of 2006, the Schmidts sold CopyCo to Global Imaging Systems ("Global"), a company headquartered in Tampa, Florida. (Trial Tr. at 20-21.) Global continued to employ Mr. Schmidt as one of twenty core presidents across the nation responsible for growing the business, acquiring new business, and expanding its territories. (Trial Tr. at 21.) In addition, Mr. Schmidt was responsible for overseeing CopyCo's business in Indiana, Kentucky, Ohio, and Illinois. (Trial Tr. at 60-61.)

         In April of 2007, Xerox acquired all the stock of Global and continued business operations in Indiana under the name CopyCo Office Solutions, a Xerox company. (Trial Tr. at 21-22.) Although Mr. Schmidt wanted to retire in 2007, he remained a Global employee to manage CopyCo's transition from Canon to Xerox products, to ensure the jobs of CopyCo's approximately 70 Indiana employees, and to continue to groom his long term employee and friend, John Drake, to take over as president. (Trial Tr. at 23, 60.) Mr. Drake was then executive vice president, responsible for CopyCo's day-to-day operations. (Trial Tr. at 59-63.)

          The Schmidts always wanted to move to Florida, and in the latter part of 2007, they began looking for houses there. (Trial Tr. at 25.) At the end of May 2008, they purchased a fully furnished house in West Palm Beach, Florida. (See Trial Tr. at 25-26; Pet'rs' Confd'l Trial Ex. 9.) The day of the closing the Schmidts moved in, and over the next ninety days, they moved their pictures, important papers, and sentimental items, including the family Bible, to their Florida house. (Trial Tr. at 26-27.) The Schmidts left their furniture in their Carmel house because it was not the type suitable for Florida and the Carmel house would show better furnished than unfurnished. (Trial Tr. at 27, 88.) Mr. Schmidt had a fully equipped office in the Florida house with a desk, phone, copier, scanner, fax machine, and computer so he could conduct his business from there. (Trial Tr. at 28.)

         The Schmidts took one vehicle with them to Florida and retitled it there, and they purchased and titled another vehicle in Florida. (Trial Tr. at 45-48; Pet'rs' Tr. Exs. 14-15.) The Schmidts left their other three vehicles in Carmel. (Trial Tr. at 91-93.) In addition, the Schmidts obtained Florida driver's licenses, joined a Florida country club, and registered to vote and voted in Florida. (See Trial Tr. at 28, 50, 54-55; Pet'rs' Trial Exs. 10, 17, Pet'rs' Confd'l Trial Ex. 18.)

         After moving to Florida, the Schmidts did not list their Carmel house for sale with a realtor right away because they feared the real estate market crash in 2008 and 2009 would cause it to sit on the market for a long time without selling. (Trial Tr. at 85-86.) They wanted to sell the house for the most they could get out of it and did not want to sell it in a "fire sale." (Trial Tr. at 86.) Nonetheless, Mr. Schmidt gave two realtors permission to show the house at any time, and they maintained the Carmel property, having it cleaned every week, to keep it ready for showing to potential buyers. (Trial Tr. at 85-86, 88.) Between 2008 and 2012, the realtors showed the house to potential buyers twice. (Trial Tr. at 86-88.) In December 2014, the Schmidts hired a realtor, and sold the Carmel house in March or April of 2015 for a substantial loss. (Trial Tr. at 87-89.)

         Prior to the due date of the first property tax installment for the 2009, pay 2010 tax year, the Schmidts notified the Hamilton County Auditor that they were no longer Indiana residents and asked her to remove the homestead deduction from their Carmel property. (Trial Tr. at 37-39; Pet'rs' Trial Ex. 19 (May 5, 2010 letter verifying that the Schmidts were not receiving the homestead deduction on the Carmel property.) Due to a problem in the Auditor's office, the 2009 and 2010 Indiana homestead deductions were not removed until 2013. (See Trial Tr. at 39-42; Pet'rs' Trial Exs. 19-21.) After their removal, the Schmidts were billed and paid the additional Indiana property tax for the 2009 and 2010 tax years. (Trial Tr. at 41-42; Pet'rs' Trial Ex. 21.)

         On October 20, 2008, the Schmidts applied for the homestead credit on their Florida house. (Trial Tr. at 29-30.) Thereafter, the Schmidts received the Florida homestead credit beginning in 2009. (See Pet'rs' Trial Ex. 11; see also Trial Tr. at 35-36.)

         From 2008 to 2010, Mr. Schmidt performed most of his duties as a Global core president from his Florida house. (Trial Tr. at 28, 59-63.) Specifically, he advised other core presidents on building their businesses and advised Mr. Drake over the telephone. (Trial Tr. at 60-61, 63.) Mr. Schmidt also attended quarterly meetings in Texas and Florida. (Trial Tr. at 61.) As a result, Mr. Schmidt did not perform any work at all while physically located in Indiana in either 2009 or 2010. (Trial Tr. at 73-76.) The Schmidts visited their son and Mrs. Schmidt's parents in Indiana occasionally in 2009 and 2010, but spent fewer than 30 days in Indiana in each of those years. (Trial Tr. at 74-76.)

         In June 2011, Mr. Drake passed away unexpectedly. (Trial Tr. at 77.) Mr. Schmidt returned to Indiana to take over Mr. Drake's duties, running CopyCo's day-to-day operations on an interim basis until December 2011. (Trial Tr. at 77-78.) During that period, Mr. Schmidt hired a new CopyCo president, John Bixby, who took over as president on the first business day of 2012. (Trial Tr. at 78-79.)

         Mr. Schmidt remained employed by Global in 2012 solely for the purpose of advising Mr. Bixby, if necessary. (Trial Tr. at 80.) In that capacity, Mr. Schmidt returned to Indiana only twice in 2012: once for three or four hours at the January kick-off meeting to announce his departure and introduce Mr. Bixby as the new president and again in April for three or four hours to assist with a service operator problem. (Trial Tr. at 80-81, 84.) Mr. Schmidt officially retired from Global in December 2012. (See Trial Tr. at 84-85.)

         The Schmidts filed Indiana Part-Year or Full-Year Nonresident Individual Income Tax Returns (Form IT-40 PNR) for 2008, 2011, and 2012, reporting Mr. Schmidt's income from work performed when he was physically in Indiana in 2008 and 2011 and Mrs. Schmidt's lottery winnings in 2012. (Trial Tr. at 78, 81; Pet'rs' Confd'l Trial Exs. 6-8.) On their returns, the Schmidts identified themselves as Florida residents and listed their Florida address. (See Trial Tr. at 78-79; Pet'rs' Confd'l Trial Exs. 6-8.)

         The Schmidts did not file Indiana income tax returns for 2009 or 2010. (See Pet'rs' Confd'l Trial Exs. 2009 "Investigation Summary" at 4, 2010 "Investigation Summary" at 3.) On November 4, 2011 and December 7, 2012, however, the Department issued Proposed Assessments against the Schmidts for AGIT liabilities for both 2009 and 2010. (See Pet'rs' Confd'l Trial Exs. 2009 "Proposed Assessment, " 2010 "Proposed Assessment")

         In 2012, Mr. Schmidt received a stock grant award as part of his compensation for his services as core president, and Global withheld Indiana income tax on the award in the amount of $2, 542.99. (Trial Tr. at 83.) Believing the withholding was a mistake, the Schmidts filed a claim for refund for the entire amount withheld. (Trial Tr. at 83; Pet'rs' Confd'l Trial Exs. 2012 "Proposed Assessment, " 2012 "Letter of Findings" at 2.) On December 2, 2013, the Department denied the Schmidts' 2012 claim for refund and assessed additional income tax and penalties because Mr. Schmidt worked in Indiana for a portion of the year. (See Pet'rs' Confd'l Trial Ex. 2012 "Letter of Findings" at 4, 7.)

         The Schmidts timely protested the Proposed Assessments and the denial of their refund claim, which were denied by the Department along with the Schmidts' subsequent requests for rehearing. (See Pet'rs' Confd'l Trial Exs. 2009 "Letter of Findings" at 3; 2010 "Letter of Findings" at 4; 2012 "Letter of Findings" at 4.) On June 14, 2013, the Schmidts filed an original tax appeal challenging the Department's 2009 and 2010 Proposed Assessments and on June 12, 2015, filed another original tax appeal challenging the Department's 2012 Proposed Assessment. On March 3, 2016, the Court granted the parties' motion to consolidate the two appeals and conducted a trial on August 31, 2016. The Court heard oral argument on February 2, 2017. Additional facts will be added if necessary.


         The Court reviews final determinations of the Department de novo. See Ind. Code §§ 6-8.1 -5-1 (i), -9-1 (c) (2017). Accordingly, the Court is not bound by either the evidence or the issues presented to the Department at the administrative level. See Horseshoe Hammond, LLC v. ...

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