Understanding military taxpayers’ rights Published March 2, 2016 By Cindy Middleton 17th Training Wing Legal Office GOODFELLOW AIR FORCE BASE, Texas -- Heading into tax season, it’s important for military members to be aware of the basic rules for determining state of legal domicile or residence for income tax purposes under the Servicemembers Civil Relief Act. This can be a confusing area. State and local tax revenue offices may erroneously overlook the member’s military status, as well as a military spouse’s rights under the SCRA, sending them a bill for taxes they do not owe. On the other hand, military families often misunderstand the limited scope of taxation protections under the SCRA. Due to confusing terminology or misleading myths, service members thought they could claim Texas as their domicile throughout their entire career because they once attended military training there. Military members need to be aware of the potential tax consequences of their connections and associations, or lack thereof, with their home state and their state of assignment. Specifically, the SCRA provides that a nonresident member's military income and personal property are not subject to state taxation if he or she is present in that state due to military orders. The military member is a nonresident for tax purposes and thus, the military pay is not earned within the state, but where the member is domiciled. Likewise, the state is also prohibited from using the military pay of nonresident military members to increase the state income tax of a military spouse. Furthermore, as a result of the Military Spouses Residency Relief Act of 2009, the SCRA was expanded to ensure the military spouse neither loses nor acquires a state of domicile or residence for taxation purposes, both income and property, if the spouse meets three requirements: the spouse must accompany the military member to a duty station state outside the domicile state to comply with military orders; the spouse is in the duty station state solely to be with the military member; and the spouse is domiciled in the same domicile state as the military member. If these requirements are met, the income earned by the military spouse while in the duty station state is not subject to taxation in that state, although such income may be subject to taxation in the spouse's domicile state. Similarly, the spouse's property is not subject to taxation in the duty station state. If the duty station state erroneously attempts to tax a nonresident member or qualifying military spouse, or reports the matter to a debt collection agency, a legal assistance attorney at the base legal office can help resolve the matter by sending a letter establishing the individuals military status and protections under the SCRA. Military members must understand that claiming a “home of record” address is not enough to establish and maintain domicile for purposes of taxation protection under the SCRA. Although a military member may have entered military service from a certain state and listed that state as the home of record for many years, those facts alone do not establish the military member’s current domicile. An individual’s “home of record” may be their state of domicile only if they have maintained connections with that state and have not created any ties with any other state. Similarly, because a military member adopted a new state of domicile during a previous military assignment does not mean that the state will remain the state of domicile for future assignments. States will look at all of the military member’s connections to determine which state has the strongest connection. Consequently, military members wishing to maintain a current state of domicile or acquire a new state of domicile should establish as many connections and associations as possible with that state. The basic premise is to cut all ties with one state and create new ties with the desired state of domicile. To establish legal domicile, the individual must be physically present in the state they wish to make their permanent home when they are not on military duty and they must show intent. Each state has certain things people can do to show this intent. For military members, this typically involves obtaining a driver’s license, registering to vote, and registering vehicles; however, the more they can establish the stronger case they will have. For clarification, please contact the 17th Training Wing Legal Office at 325-654-3203 for an appointment to meet with a legal assistance attorney.
