I have seen this done, but I wouldn't call it typical. I have prepared a number of Indiana returns, and I have seen a few government agencies (surprisingly enough), not withhold local tax. But all Indiana counties tax you if you either work there or live there, and this is reconciled on the Indiana State return. To answer your last question, yes, the DOR "redistributes" your tax to your county, because both your state and county tax are calculated on the Indiana State return.
You may want to ask your company why they are not withholding Indiana county tax. They are supposed to. (If they refuse to, you can request to have additional tax withheld to compensate).
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