Persons and income subject to tax; exemptions; joint returns

(b) If, on January 1, a taxpayer's county of residence is a nonadopting county, but his or her county of principal place of business or employment is an adopting county, he or she must pay LIT on the income derived from his or her principal place of business or employment for the entire year. Even though he or she may later begin working in a nonadopting county, he or she must pay county tax for the entire year on the income earned from his or her principal activity, even if the principal activity is later conducted in another county.

(c) However, if an individual neither lived nor maintained his or her principal place of business or employment in an adopting county on January 1, he or she is not subject to LIT on any part of his or her income even though his or her county of residence or principal place of business or employment changes to an adopting county during the year.

(d) An individual who as of January 1 maintains his or her principal place of business or employment in an adopting county but is a nonresident of Indiana, or is a resident of Indiana on January 1 but moves out of Indiana during the tax year, is subject to LIT only on income derived from Indiana sources. An individual who as of January 1 had his or her county of residence in an adopting Indiana county is not liable for LIT on income earned outside the state while not a resident of the state.

(e) An individual who as of January 1 lives in an adopting county and moves out-of-state to a reciprocal state, while maintaining his or her Indiana principal place of business or employment, will not owe adjusted gross income tax on the wage income earned after moving out of Indiana. However, LIT will be due on the wage income earned after moving out of Indiana. It should be reported in the county tax schedule of the appropriate tax return.

(f) If an individual is subject to LIT on income from his or her principal place of business or employment, the tax rate shall apply to the taxpayer's adjusted gross income derived from his or her principal place of business or employment for the entire year. Adjusted gross income derived from principal place of business or employment is defined as federal adjusted gross income from that activity after modifications required under IC 6-3-1-3.5 (a) against such income.

(g) For purposes of determining whether a deduction is allowable against the adjusted gross income from a principal place of business or employment, the deduction shall be allocated in a manner consistent with the allocation used on the state income tax form filed by the individual. In the case of a filer permitted to complete a return reporting only income derived from activities covered by a reciprocal agreement, the allocation of modifications shall be done in a manner consistent with individuals who otherwise would file a nonresident or part-year resident tax return. For purposes of the county tax portion of a return required for a taxpayer with only income derived from activities covered by a reciprocal agreement, no exemptions shall be permitted on the return.