§ 6-3-2-27.5 — Exemption for Indiana income earned by nonresidents

Indiana § 6-3-2-27.5

• Jurisdiction: Indiana
• Art. 3: STATE INCOME TAXES
• Ch. 2: Imposition of Tax and Deductions

Text

Note: This version of section effective until 7-1-2027. See also
following version of this section, effective 7-1-2027.
Sec. 27.5. (a) As used in this section, "compensation"
means any wages, salaries, tips, or similar income that is subject to the
withholding requirements under IC 6-3-4-8, or would otherwise be
subject to the withholding requirements under IC 6-3-4-8 if not for the
application of:
(1) IC 6-3-4-8(d);
(2) IC 6-3-5; or
(3) this section.
(b) As used in this section, "professional athlete" means:
(1) an athlete, other than a team member (as defined in section
2.7(a)(4) of this chapter) or a race team member (as defined in
section 3.2(a)(4) of this chapter), who performs services in a
professional athletic event for compensation;
(2) a team member (as defined in section 2.7(a)(4) of this chapter)
who has at least one (1) duty day in Indiana during a taxable year;
or
(3) a race team member (as defined in section 3.2(a)(4) of this
chapter) who has at least one (1) duty day in Indiana during a
taxable year.
(c) As used in this section, "professional entertainer" means a
person who performs services in the professional performing arts for
compensation on a per-event basis.
(d) As used in this section, "public figure" means a person of
prominence who performs services at discrete events, including
speeches, public appearances, and similar events, for compensation on
a per-event basis.
(e) As used in this section, "time and attendance system" means a
system:
(1) through which an employee is required, on a contemporaneous
basis, to record the employee's work location for each day worked
outside the state in which the employee's employment duties are
primarily performed; and
(2) which is designed to allow the employer to allocate the
employee's compensation for income tax purposes among all
states in which the employee performs employment duties.
(f) Except as provided in subsection (j), compensation is exempt
from the adjusted gross income tax imposed under this article and IC 6-3.6 if all of the following conditions are met:
(1) The individual is not a resident of Indiana at any time during
the calendar year in which the employee performs employment
duties.
(2) The individual receives compensation for employment duties
performed by the individual in Indiana for thirty (30) days or less
during the calendar year.
(3) The compensation is not paid for employment duties
performed by the individual in the individual's capacity as a
professional athlete, professional entertainer, or public figure.
(g) Except as otherwise provided in this section, an employer is not
required to withhold taxes imposed under this article or IC 6-3.6 from
compensation paid to an employee described in subsection (f).
However, if the number of days that an employee performs
employment duties in Indiana exceeds thirty (30) days, the employer
shall withhold and remit tax to the state of Indiana from all
compensation paid to the employee for every day on which the
employee performed employment duties in Indiana, including the first
thirty (30) days.
(h) The department may not require payment of any penalties
otherwise applicable for a failure to deduct and withhold income taxes
under IC 6-3-4-8, if, when making the determination of whether
withholding was required, either of the following applied:
(1) The employer relied on a time and attendance system
maintained by the employer specifically designed to allocate
employee wages for income tax purposes among all taxing
jurisdictions in which the employee performs employment duties
for the employer.
(2) The employer did not maintain a time and attendance system
and the employer relied on the employee's annual determination
of the time the employee expected to spend performing
employment duties in Indiana, if:
(A) the employer did not have actual knowledge of fraud on the
part of the employee in making the determination; and
(B) the employer and the employee did not collude to evade
taxation in making the determination.
An employer's maintaining of records as described in subdivision (1)
does not preclude an employer's ability to rely on an employee's
determination of the time the employee expected to spend performing
employment duties in Indiana as described in subdivision (2) when
making the determination of whether withholding is required.
(i) For purposes of this section:
(1) subject to subdivision (3), an employee shall be considered
present and performing employment duties within Indiana if the
employee performs more of the employee's employment duties
within Indiana than in any other state during a particular day;
(2) any portion of the day during which an employee is in transit
may not be considered in determining the location of the
employee's performance of employment duties; and
(3) if an employee performs employment duties in the employee's
state of residence and in only one (1) nonresident state during a
particular day, the employee shall be considered to have
performed more of the employee's employment duties in the
nonresident state than in the state of residence for that day.
(j) The following apply for purposes of this section:
(1) If an individual receives compensation for employment duties
performed by the individual both:
(A) in the individual's capacity as a professional athlete,
professional entertainer, or public figure; and
(B) in some capacity other than the individual's capacity as a
professional athlete, professional entertainer, or public figure;
the exemption under this section may not be applied to the portion
of compensation described in clause (B).
(2) If an employee is working at a location other than a physical
location of the employer, the employee shall be considered to be
working in the state or states in which the services for the
employer are performed, regardless of the physical location of the
employer.
(3) If an individual performs employment duties in Indiana for
more than thirty (30) days during a calendar year, compensation
received by the individual is not eligible for the exemption under
this section.
(4) If an individual performs substantially similar job duties for an
employer both while designated as an employee and in some
capacity other than as an employee during a calendar year, the
number of days for which the individual shall be considered to
have worked in Indiana with regard to that employer must be
determined by aggregating the days for which the individual
performed duties for the employer, whether designated as an
employee or not.
(5) If an employer or individual reasonably believes that an
individual is an employee for a calendar year but the individual is
later determined to not be an employee, the individual:
(A) is subject to tax under this article and IC 6-3.6 on any
income that otherwise would have been exempt under this
section; and
(B) is not subject to penalties under IC 6-3-4-4.1 or IC 6-8.1-10-2.1 based on the inclusion of amounts claimed as
exempt under this section as income.
(6) If an individual is not a resident of Indiana, amounts paid for
vacation, sick, personal, or any other type of leave may not be
considered as compensation in Indiana, and any day for which a
type of leave is used may not be considered as a day for which the
individual performed services for an employer unless the
individual performed services for the employer in Indiana on that
day and the day would otherwise be counted as a day of services
performed in Indiana under this section.
(7) The exemption provided under this section shall not apply to
an individual's compensation that is deferred or delayed from a
previous calendar year to a subsequent calendar year unless:
(A) the individual was exempt from taxation under this section
on the compensation for the calendar year in which the
compensation was earned; and
(B) the individual is not a resident of Indiana when the
individual includes the compensation in the individual's federal
gross income.
(k) Nothing in this section may be construed to prevent an
individual from being considered a local taxpayer (as defined in IC 6-3.6-2-13(2)), regardless of whether the individual's compensation is
exempt under this section.

Legislative History

As added by P.L.194-2023, SEC.16.