Why not 'vos estis'?
I believe that is also correct.
Why not sumus?
In Italia sumus would be 'We are in Italy'.
Why not "in Italiam"?
in with an ablative specifies a location (no movement). in Italia -> 'in Italy'.
in with an accusative specifies a movement into that location. in Italiam -> 'into Italy'.
Also "In Italia es"