In the Coast Guard and paid no state tax

[mblatour]

My aunt just contacted regarding my cousin's situation. He is in the Coast Guard and spent all of 2005 in Alaska (sometimes they'd send him out to sea; sometimes to another state for a few weeks for training; but majority of the time was spent in Alaska). We are from MN and my cousin's money was direct deposited every pay period into his MN account.

The Coast Guard did not remove any state taxes. I am questioning what state he would file to in this situation, and I am assuming that he now has to pay state tax to whichever state he files to in full. This is a tough situation because I am not actually the preparer, and am only giving them advice. Problem is, I don't know the answer.

I am going to research it a little, but your advice would be great. Thanks!

[Nancy]

MN rules

Beginning in 2005, Minnesota military members are no longer treated as nonresidents but are allowed a subtraction of their federal active duty military pay for services performed outside of Minnesota.

See the following link for additional information:

http://www.taxes.state.mn.us/individ/residency_and_filing_status/military/sub_active_duty_military.shtml

[mblatour]

more information

Thanks Nancy, I took a look at that link earlier this morning and in my cousin's situation, he is not active duty military. He is still in training with the Coast Guard; but could be called to duty.

I looked at the Alaska state website, but did not find much there so far.

I am still looking.

[Snaggletooth]

Residency?

I'm hardly an expert here, but at some point does not a military man have the option of changing his residency to a state of service? (That would be helpful in this case because Alaska has no income tax)

My cousin (Air Force 25 years) once served at Keesler in Mississippi for three years. He changed his residency to Mississippi and kept it there for the remainder of his service. He told me Mississippi had one of the lowest tax rates at the time and as long as he lived on a military base, the other states had no jurisdiction to tax him.

I also filled out a return on Redstone Arsenal in Alabama for a man whose residence was New Hampshire (another no-tax state). He was in the Army, obviously worked for the Army, and lived entirely on the Army base. We filed no Alabama tax because he claimed to be a resident of New Hampshire.

Nancy this is your area of expertise - would love to have your opinion! You too, Ken from Ft. Huachuca - would love to hear from you!

[Nancy]

Determine domicile

Your cousin will have to determine his domicile.

Take a look at this site for some helpful suggestions on determining domicile for military personnel:

http://www.jagcnet.army.mil/JAGCNETInternet/Homepages/AC/Legal%20Assistance%20Home%20Page.nsf/4e83160f563ce6fc852568f90058f0f6/30e41e4b793bc07d852568b400406c3f?OpenDocument

Is his military home of record currently Minnesota?

[wv112]

Years ago, my ex re-enlisted in the Air Force. He re-enlisted in Tn as that was where he was living at time. We were stationed at the air base in MS. As his home was Tn when he enlisted, and Tn has no state income tax, we didn't have to pay state income tax to MS as the military had him as a resident of TN. I don't think think this has ever been changed.

[rosieea]

Thanks Nancy, I took a look at that link earlier this morning and in my cousin's situation, he is not active duty military. He is still in training with the Coast Guard; but could be called to duty.

I looked at the Alaska state website, but did not find much there so far.

I am still looking.

It sounds to me like he IS on active duty. If he's in the Coast Guard, and in training, he's on active duty during the training period.

[mblatour]

Residency is Minnesota

I just spoke to my aunt and his residency still is Minnesota. In 2005, he spent 2 months in New Jersey for training, 8 months in Alaska, and the other 2 months was spent either out to sea, or here-or-there for training.

He never changed his residency to another state, and my aunt said that when he enlisted, she believes it WAS considered 6 years active, and then he'll have another 2 years inactive that he can be called to duty. All I know is he spends most of his time working on boats or training to learn more about working on boats.

Does this give more insight?

I was thinking with the new 2005 situation for MN, all of his income earned is taxable on the federal level, but not on the state level. The Coast Guard was his only source of income for 2005.

[Nancy]

Active duty

If you determine that he actually is on active duty, then I agree, his military income is subject to federal tax; he is required to file a Minnesota resident return and can subtract his military income for services performed outside Minnesota.

If you cannot determine from other sources if he is actually on active duty or not, the Coast Guard has a site that allows you to locate personnel on active duty:

http://www.uscg.mil/locator.html

[mblatour]

Thanks for your input

I just spoke to my uncle who spoke to my cousin and said that they found out that he doesn't have to pay the state tax. So all is taken care of. Thanks!