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  • Captain Harper

State of Legal Residence - Possible Tax Benefit

A state of residence is a lot more important than most people realize. It determines, for example: liability for state income taxes, eligibility for "in-state" tuition rates, eligibility for voting in state and federal elections, and where wills are probated. Legal residence can be especially complicated when one is in the armed forces because of the transient lifestyle. When in the armed forces, the military tells you where you will work and live.

Where the military sends a service member for duty is not necessarily the "legal residence" or domicile. The duty is considered temporary, whereas the legal residence is more permanent -- where you plan to hang your hat at the end of your service in the military.

A person can change legal residence at almost any time; however, it is important to understand that legal residence is established, not chosen. One cannot simply choose a state that is particularly friendly to military income and decide it is the legal residence; rather, citizens must first meet three requirements. The three requirements to change your state of legal residence are: you must be physically present in the state, you must intend to remain indefinitely in the state; and you must intend to abandon your previous legal residence.

For example, if a Marine grew up in Maryland, but is stationed in Texas and finds that he or she likes Texas a lot more than Maryland, legal residence can be changed from Maryland to Texas. A Marine is in Texas because of being stationed there, so he or she meets the first requirement--"physical presence." The physical presence requirement is why it is virtually impossible to change legal residence while stationed overseas-- because the person lives in another country. If someone is overseas and wants to change legal residence, he or she must go back to the U.S., establish physical presence in a new state, and have the appropriate mental intent while physically present there.

Now, "intend to remain indefinitely" -- what does that mean? It means that, in this same scenario, you now consider Texas "home," and that if you got out of the military tomorrow, you would stay in Texas for the indefinite future with no plans to move elsewhere any time soon. A person can show intent to remain indefinitely by the following actions:

-registering to vote and actually voting in the new state,

-obtaining a driver's license in the new state,

-registering vehicles in the new state,

-updating the most recent Last Will and Testament to reflect the new state of legal residence,

-paying taxes in the new state,

-purchasing property in the new state, and

-notifying the former state's relevant department of revenue that legal residence has been changed.

Who checks this? For one, the individual states -- or rather, their tax departments -- care about this significantly. You used to pay taxes to Maryland, and now you don't. Maryland may ask, "Why aren't you paying taxes to us anymore?" How can you respond? Your local Legal Assistance Office can assist in preparing a response.

For example, you may respond by showing evidence of the intent to adopt Texas as your new home state: you have a Texas driver's license, you registered your cars in Texas; you registered to vote in Texas (and you have voted in Texas); and you bought property in Texas. Just as important, you may also include in your response the following: you no longer have a Maryland driver's license; you no longer have vehicles registered in Maryland; you no longer are registered to vote in Maryland; you own no property in Maryland. This information is important because, in order to adopt a new state of residence, a person must abandon the previous state of residence, as a person can only have one legal residence at a time.

When changing a state of residence, a person must complete DD Form 2058 and turn it into the personnel office. This form tells DFAS which state's taxes to withhold from the paycheck. Filing this form alone, however, does not change state of legal residence. This form is filed to adjust state income tax withholding after a person has taken necessary steps to meet the requirements to change the state of residence.

A person must have a state of residence at all times, even if you aren't sure where "home" is, you've moved around a lot in the past few years, or you're now overseas. This applies to everyone, including family members, Department of Defense civilians, contractors, etc. If you are a U.S. citizen, you have a "state of legal residence." If you are not sure what state that is, set up an appointment with the Legal Assistance Office to ensure you are paying taxes to the right state and are not liable for back taxes, interest or penalties.

One last thing: "legal residence" is not the same thing as Home of Record. Home of Record is a military administrative term used to determine specific military entitlements (e.g., calculation of transportation costs when you get out of the Marine Corps). It is typically the state where a person joined the military, and can only be changed if it was done incorrectly at the time of inital enlistment with your OSO. Home of Record does not mean anything regarding current legal residence.

Legal Residence is a complex, but very important issue, especially for service members and their families. For example, there are other laws that may apply, such as the Military Spouse Residency Relief Act. Anyone with questions about state of residence or state taxes should reach out to their base legal assistance office.


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