JOINT BASE CHARLESTON, S.C. -- “What is your state of legal residency?” It’s a question our office asks every day when drafting wills and powers of attorney and the answer has important legal consequences for tax liability among other things. Active duty military members can rotate duty stations every two years, which adds complexity to the answer.
Our domicile, or our state of legal residence, dictates our rights and obligations with regard to a specific jurisdiction. Framing a hypothetical will assist in navigating a complex framework. If Staff Sgt. Snuffy moves from New York to Texas, where is he domiciled? In short, it depends. Let’s start by assuming that Snuffy was a legal resident of New York but now wants to abandon his domicile/legal residency in New York and become domiciled/a legal resident in Texas, which is one of seven states that has no income tax.
Establishing domicile, or state of legal residency, is a two-part test. First, physical presence in the state is required. A member actually has to set foot in a state to claim it as a legal residence or domicile. Second, a court will analyze a member’s intent to remain in a state. The way to establish “intent to remain in a state” is to establish and maintain minimum contacts with that state. For example, owning land in Texas, registering to vote in Texas, and obtaining a Texas driver’s license. Some states consider 26 different factors when determining where a person is domiciled.
Members often get confused by the term “Home of Record” and “State of Legal Residency.” Home of record is where a member joined the military. This is the location where the military will pay to return an active duty member after he/she separates or retires. Although possible, as a general rule, military members do not change their home of record. Members can change their state of legal residency or domicile at any time by establishing and maintaining minimum contacts with a state, as previously discussed.
The issue we frequently see in the legal office is a member claiming legal residency on his/her leave and earning statement, but not actually having contacts with the state that is being claimed. Changing the notation of your state of residency on your LES does not automatically make you a resident of that state. It might be one of the many factors a particular jurisdiction would look at in determining whether you are a legal resident of that state, but at best it would only be a tiny factor – home ownership, voting, possession of state identification are all much greater factors in that analysis.
Although the Servicemember’s Civil Relief Act allows members to maintain their state of legal residency when performing military duty in a different state, the key word that members overlook is “maintain.” Members must actively maintain or defend their domicile/residence. When a member moves into a state and obtains a driver’s license, purchases a home, registers to vote, and registers his/her vehicles, this can result in them having no contacts with the previous state. When this happens, the member has effectively abandoned his/her domicile or residency in the previous state; therefore, that state cannot be claimed on the member’s LES for tax purposes. The new state where the member has established contacts now has legal standing to tax the member’s income and could potentially seek taxes, and failure to file penalties, for all the years that the member resided in the new state.
The Military Spouses Residency Relief Act, which was passed in 2009 allows military spouses to maintain the state of legal residency that is shared by the member and spouse. This law is often misunderstood. A dependent spouse cannot claim a member’s state of legal residence by virtue of being married to the member; a dependent spouse who never lived in Texas cannot claim to be a Texas resident just because their spouse is a resident of Texas. The dependent spouse must be a resident of the state because he/she has established minimum contacts with that state, i.e., property ownership, voter registration, driver’s license, etc.
Military members and dependents must actively defend their domicile, if they desire to claim that state for tax purposes. And take note, SCRA does not necessarily protect a military member from having to secure a driver’s license from the state where they are stationed, even if that member intends to remain a legal resident of a different state. Therefore, obtaining a state identification card from your state of legal residence is a good way to demonstrate your intent to maintain residency, especially, if you are stationed in a state that requires you to obtain a driver’s license in that state.
This article is not intended to replace seeking legal advice from an attorney. Legal assistance is provided at the Air Base on a walk-in basis on Tuesdays from noon to 3 p.m. Legal Assistance is available at the Naval Weapons Station on a walk-in basis Mondays from 8 to 11a.m. and on Fridays by appointment from 8 to11 a.m. Please call 843-963-5502 for all appointments.