Military State Taxes

[Edsel]

California native Bohms Aweigh is an UNMARRIED career Army officer. He was stationed at Ft. Bliss, TX and decided to move his permanent residence to Texas in part because they had no income tax. Ever since then, he drives on Texas license tags and lists El Paso, TX as his home.

He currently is stationed at Pueblo Army Depot (a.k.a. "the chemical dump") in Pueblo, Colorado. He lives in base housing and is, of course, paid by the Army. He is NOT a civilian. The Army is not deducting Colorado state income taxes. The personnel office would not give him an opinion as to whether he had to file in Colorado, but they did tell him that state withholding was "optional". With respect to the entire matter, the personnel office told him to "consult with his tax advisor."

He is claiming since his employ and temporary residence is within the confines of the military reservation that Colorado is not sovereign with respect to the Depot. To some extent, I believe he is correct, except I think sovereignty is an "all-or-nothing" affair.

Which of the following is true?
a. Bohms is required to file a non-resident Colorado return.
b. Bohms is required to file a resident Colorado return.
c. Bohms is not required to file a Colorado return at all.

[spanel]

Its my understanding that you file the state return that you are planning on living in when done with the military as long as they dont buy a house while in the military. If they buy a residence off base, then my finger is pointing to that state as it trumps the "well im gonna move later".


Chris

p.s. how did he decise that TX was his perm res when he started in CA? I would bet its not only in part because of no tax, its probably THE reason.

[Burke]

The general rule is, if residence is established in a state, either by buying or renting a domicile off-base, then he is deemed to be a resident of that state. But I would not assume that all states are the same. You need to review Colorado's rules on such residency. TTB All-States simply says "Military pay of nonresidents who are in Colorado on military orders is not subject to Colorado tax." Should he get a non-military outside job in CO, he would have to file on that. The state he lived in when he joined the military may still claim that he is a resident of that state, just temporarily away.

[DaveO]

A number of states don't tax the wages of active duty military. The individual can elect to remain a resident of that state and most other states won't attempt to tax their wages. Here in NE a non-resident return is filed with an adjustment to income for the military wages.

[Edsel]

Spanel is right

p.s. how did he decise that TX was his perm res when he started in CA? I would bet its not only in part because of no tax, its probably THE reason.

Yes, my original post leads the reader to believe that Bohms sat down and weighed all the upsides and downsides of various states and after careful consideration, a decision in favor of Texas eked out a decision to remain a CA resident. Spent several sleepless nights trying to decide.

Spanel is probably correct. After filing a federal only return while in Texas, he most likely wondered why on earth anyone would continue paying California taxes, and the "careful consideration" was really a slam dunk.

[Jesse]

The general rule is, if residence is established in a state, either by buying or renting a domicile off-base, then he is deemed to be a resident of that state. But I would not assume that all states are the same. You need to review Colorado's rules on such residency. TTB All-States simply says "Military pay of nonresidents who are in Colorado on military orders is not subject to Colorado tax." Should he get a non-military outside job in CO, he would have to file on that. The state he lived in when he joined the military may still claim that he is a resident of that state, just temporarily away.

For this reason I would vote:

c. Bohms is not required to file a Colorado return at all.

However, I would think CA could have some issues. I would be hesitant with the statement "He was stationed at Ft. Bliss, TX and decided to move his permanent residence to Texas in part because they had no income tax. Ever since then, he drives on Texas license tags and lists El Paso, TX as his home."

I would think much would also depend on how long he actually physically resided in Texas, did he buy a home, etc... If it was at a temporary base and he only changed his license and mailing address it may come back to haunt him.

[FEDUKE404]

Legal residence vs home of record issues

Here is your answer:

http://usmilitary.about.com/cs/militarylaw1/a/homeofrecord.htm

EXCERPTS:
...the military is required by regulation to ensure that military members are not changing their "legal residence" for the sole purpose of obtaining a tax advantage. Therefore, when changing your "legal residence," military officials at the legal office (or finance office) may require some degree of proof that you consider the new state to be your "permanent home."

The easiest proof is "physical presence in the state." If you are currently stationed in a state, and wish to make it your permanent home, it's generally pretty easy. If you are not currently stationed in the state you wish to make your permanent home, and have never been stationed there, it becomes much harder.

And this link addresses how several states (including California and Colorado) treat military pay of their own "residents":

http://usmilitary.about.com/od/taxes/l/blstatetax.htm

One other issue that can muck up things is if the serviceperson and/or non-military spouse has wage income where they actually live. Regardless of any of the above, it is likely the state in which the serviceperson is stationed will tax those wages, probably via a non-resident return scenario.

FE

[Edsel]

Excellent Information

from FEDDUKE, and others for which I thank you.

Bohms Aweigh and the CO situation was fictional, but I do have two family members in the military, one of whom changed from Ohio to Florida, but it had to occur when he was stationed at McDill AFB in Tampa. Bailed him out of state taxes until he retired. Another changed from California to Mississippi while he was at Keesler AFB in Biloxi. MS actually does have a state income tax but according to him "it is microscopic compared to CA and I want to retire on the Gulf Coast of Mississippi."

Army and AF have LOTS of military bases in non-income-tax states, especially in TX and FL. All that is required is to be stationed there. Navy not so easy - not as many bases and not that many in TX, FL.