The Indiana Department of Revenue has issued a commissioner’s directive providing guidance for the treatment of refund claims based on the U.S. Supreme Court decision in Comptroller of the Treasury of Maryland v. Wynne. In Wynne, the Court held that the state of Maryland’s tax structure was discriminatory because it subjected interstate income to higher taxes than intrastate income because residents were entitled to a credit against state taxes only for income tax paid to other states, not for any county taxes paid to counties in other states. The directive clarifies that Indiana is not in a similar situation as Maryland because Indiana allows credits for out-of-state taxes at both the state and local levels; therefore, there is nothing discriminatory in the Department’s treatment of out-of-state income.
However, the county economic development income tax (CEDIT) did not provide a credit for out-of-state local income taxes prior to January 1, 2015, and after review, the Department has determined that a credit for out-of-state local income taxes will be permitted against pre-2015 CEDIT liabilities. Taxpayers may file a claim for refund or credit based on the allowance of out-of-state local income taxes against CEDIT prior to the expiration of the statute of limitations.
If a credit for out-of-state local income taxes (not state income taxes) has not previously been permitted against a taxpayer’s CEDIT liability, a taxpayer may file a claim for refund or credit based on the allowance of out-of-state local income taxes against CEDIT. However, the amount allowable as a credit shall be no greater than:
- The out-of-state local income tax liability on the adjusted gross income taxed by a non-Indiana locality on that same income, or
- The amount the taxpayer’s CEDIT liability would have been reduced by eliminating the adjusted gross income taxed by a non-Indiana locality from the taxpayer’s Indiana adjusted gross income, whichever is less.
Any claim for refund based on this interpretation must be filed prior to the expiration of the statute of limitations provided under IC 6-8.1-9-1. The department will not grant a credit of out-of-state local income taxes absent sufficient documentation that the individual actually paid the tax.