Tax Season Overseas: New tax law grants servicemembers' spouses residency protections
January 11, 2010
GRAFENWOEHR, Germany -- When servicemembers reside in a state because of their military duties they are often exempt from paying state taxes there, unless that state is also the Soldier's state of permanent residence or domicile.
The Civil Relief Act, or SCRA, is the law that guarantees the Soldier's protection. On Nov. 11, 2009, President Obama extended those protections to the spouses of servicemembers, and signed a new law, the Military Spouses Residency Relief Act (MSRRA).
Permanent residence and domicile are interchangeable legal terms referring to the place where a person has their permanent home, and where they have the intention to return.
"A person's domicile is established by physical presence in the state with the simultaneous intent of making it a permanent home," said Brad Huestis, chief of Client Services Division at the 7th Army Joint Multinational Training Command's Office of the Staff Judge Advocate. "Generally, a person must reside in the new state at the time they form the intent to make it their permanent home."
Huestis said, while the MSRRA extends a valuable protection to military spouses, it does not allow a spouse to pick another State of residence just for tax purposes.
"First, the physical presence and intent tests must be met," he said. "Then, to retain a domicile spouses must share the domicile of the servicemember spouse."
It is not uncommon for Soldiers to keep their home of record throughout their military service, despite the frequent relocations to many duty stations. Similarly, some Soldiers do elect to change their state of legal residence to one, which is different from their home of record, said Huestis. However, a Soldier must meet the physical presence and intent to remain and return tests to do so.
Under the MSRRA, the same is now true for military spouses.
For example, if a Soldier assigned to Fort Hood, Texas, marries, and the spouse lives in and establishes domicile in Texas, then both may retain Texas domicile when they later PCS to Virginia. Neither would be subject to Virginia's state income tax, while there on military orders. Likewise, if the couple met and married in Virginia, the military Texan would be exempt from Virginia state income tax under the SCRA, but the spouse would not be able to use the MSRRA to avoid Virginia state tax because the physical presence and intent tests were not met.
"Each State has different tax regulations and filing requirements," said Tracy Cooklin, a tax center coordinator. "Before a spouse attempts to change their state of residency for tax purposes. They should first contact the state taxation board for advice."
Tax centers in Ansbach, Illesheim, Bamberg, Grafenwoehr, Hohenfels, Schweinfurt and Vilseck open beginning Feb. 1, 2010. Information on locations and phone numbers for each is available at http://www.hqjmtc.army.mil/Organization/Special_Personal_Staff/Staff_SJA/Staff_SJA_TaxOffice.html.
Tax preparers will be available to assist filers with any tax questions, said Cooklin.
"Filling out a DD Form 2058, "State of Legal Residence Certificate" by itself will not legally change a servicemember's state of legal residence," said Cooklin. "The form is only used by DFAS to determine state income tax withholding for military pay."
Cooklin said, military members and their spouses who establish new domicile in states without an income tax, such as, Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming should document and be prepared to show proof of ties to their new state, and of cutting ties to their old state.
Some good examples of proof of physical presence and intent to remain include: registering to vote, voting and continuing to vote via absentee ballot, ownership of land, and maintaining a valid driver's license.
The 7th Army JMTC tax centers open Feb. 1, 2010, and offer free federal and state income tax preparation and e-filing. When the tax centers are not open, always contact your local legal assistance office with questions about establishing or maintaining state domicile.
<i>Editor's Note: Special thanks to Tracy Cooklin, JMTC tax center coordinator, and Brad Huestis, chief of Client Services Division at the JMTC Office of the Staff Judge Advocate for compiling the facts used in this article.</i>