Employees or Independent contractors?  Taxpayer argued that certain workers were independent contractors, so that it wasn’t responsible for collecting and remitting withholding tax on them.  Employers are “required to withhold adjusted gross and county adjusted gross income tax from payments of wages made to its employees.” (citing 45 IAC 3.1-1-97).  Taxpayer argued that the Internal Revenue Service (IRS) provides several factors to consider when determining if a worker is an employee or an independent contractor.  The Department, however, referenced the following ten factors identified in Indiana court decisions:

  1. The extent of control which, by the agreement, the master may exercise over the details of the work;
  2. Whether or not the one employed is engaged in a distinct occupation or business;
  3. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision;
  4. The skill required in the particular occupation;
  5. Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work;
  6. The length of time for which the person is employed;
  7. The method of payment, whether by the time or by the job;
  8. Whether or not the work is a part of the regular business of the employer;
  9. Whether or not the parties believe they are creating the relation of master and servant; and
  10. Whether the principal is or is not in business.

(citing Snell v. C.J. Jenkins Enterprises, Inc., 881 N.E.2d 1088, 1091 (Ind. Ct. App. 2008)).  Here, “Taxpayer discusses the IRS factors but provides little documentation in support of its position that the individuals were independent contractors and not employees.”  While Taxpayer provided copies of some federal 1099 forms – “which are given to independent contractors for federal tax reporting purposes” – this addressed only the ninth factor discussed above, i.e. whether the parties believed they were creating a master and servant relationship.  But the eighth and tenth factors weighed against Taxpayer’s position, “since it was in business during the years in question and the work in question was a regular part of that business.”  No proof was offered to address the remaining factors.  Therefore, Taxpayer’s protest was denied, although the Department agreed to remove the amounts of payments listed on the 1099s submitted during the protest.  Letter of Findings No. 03-20130123 (2005 – 2011 tax years) (posted October 30, 2013).

Procedural NoteSince Taxpayer hadn’t filed withholding tax returns for the tax years, “there is no time limit for the Department to issue proposed assessments for withholding tax for those years.” (citing Ind. Code § 6-8.1-5-2(f)).