Discussion:Military Residence - Personal & Spouse

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Discussion Forum Index --> Basic Tax Questions --> Military Residence - Personal & Spouse


Discussion Forum Index --> Tax Questions --> Military Residence - Personal & Spouse

Patob109 (talk|edits) said:

10 November 2010
Looking for some help related to a 2006 MA tax issue that just arose.

The client is a married couple, the wife is a member of the air force and the husband is a civilian.

The Wife has always been a MA resident is enlisted in the service there. She was then stationed to Alaska in 2005 and was there until 2007. Based on the SCRA it is my understanding that no matter where she went, all of her tax would be considered MA source and that she is a resident of MA.

The Husband lived in MA for Jan 2006 & collected MA unemployment for that month. He then moved to Alaska in Feb 2006 and stayed there until 2007, with the wife. Is he still considered a MA resident; not changed his domicile? Is it possible that the husband & wife have different domiciles? He worked in Alaska from 2006 – 2007 earning income in that state, is this MA source income in 2006 or can MA only tax him on the unemployment?

The MA form 1 2006 has the following example, which seems extreme to me: (though it gets to the domicile issue, are they stuck as MA residents or can they have different domiciles?) Example: Betsy enlisted in the Navy in Massachusetts, but moved with her husband, Eric, from Massachusetts to Delaware when she was stationed there. They did not change their domicile to Delaware. She received military income while her husband received income working as a reporter for a local newspaper. Betsy’s income from the Navy, as well as her husband’s income from the newspaper, are both subject to Massachusetts income tax since she enlisted in the Navy in Massachusetts and they did not become legal residents of Delaware. Betsy and her husband are, therefore, Massachusetts residents, and any income they receive, whether derived in Massachusetts or not, is included in their Massachusetts gross income.

R2 (talk|edits) said:

10 November 2010
For 2006, the wife's income is taxable on her resident state return (MA), and the husband's wages and UC are taxable on his resident state return (unknown state). In addition, the UC would presumably be taxable in MA.

Yes, it is possible for spouses to have different domiciles, but apparently, they cannot file a joint MA return if such is the case.

So, this is really a question of whether the husband was or is domiciled in MA.

RoyDaleOne (talk|edits) said:

10 November 2010
Naturally, if the taxpayer changes the taxpayer's place of domicile from MA to some other state MA would not be entitled to tax the income not connected to MA.

Some of the statements above may need additional explanations based on facts not posted.

There should be clear events or acts that show the change in residency. Driver license, voting, change of home of record, etc.

Patob109 (talk|edits) said:

11 November 2010
Thanks for the advice so far. It is mostly what I see so far as I do not have all the facts.

The wife is MA resident (for taxes) for the entire year. Even though she got Alaska drivers license and changed voting and address info; the military status has her as MA and all income is MA income.

The husband has potential to be a part year resident in MA if he can gather enough info to prove he changed domicles? Drivers license, voting, employment & housing in Alaska... hope there are still some records around. However the MA Unemploymenet is MA source.

I am in agreement that the husband's domicle is the issue. Does anyone have the MA DOR references to allowing the husband / wife to have seperate domicles or the domicles rules?

Todundsteuer (talk|edits) said:

11 November 2010
Patob:

W and H are domiciled where they are physically present and, contemporaneously with that physical presence, form the mental intent to remain in that place indefinitely and to return to it after any temporary absence.

Mental intent can be demonstrated by any number of things such as duration of residence, registration to vote, drivers license but none is absolutely dispositive. (I note in this regard that drivers licenses, however, are gradually becoming a substitute for a national ID card in the USA. As states join the interstate compact that requires proof of permanent residence and surrender of existing licenses before a state will issue its own licence, the drivers license will soon be the most important factor in determining domicile.)

Since it is MA that is the loser if W and/or H decide they have changed their domicile to AK, it is MA they have to convince that they have genuinely changed their domicile - and when.

Since W's military pay is probably still being subjected to MA withholding, she will have to file a MA return to get it back. MA probably follows the general rule (found nowhere in the Common Law or statutes) that "If we got money we're gonna do everything we can to keep it."

If she wants her military pay withholding to conform to her new domicile (presumably AK) she must go to her military pay office and execute a DoD change of state withholding form. (Can't remember the form number but her military pay office is familiar with it. The form also warns that the mere fact of changing state of withholding of military is not sufficient to effect a genuine change of domicile.) Then she won't have to go through the annual drill of filing a return to reclaim money she should never have had withheld in the first place. Once a state doesn't get the money through withholding they don't put up much of a fuss; people move out all the time.

Patob109 (talk|edits) said:

11 November 2010
Tod:

I am going to have to disagree with some of your thoughts. My research would have the W subject to MA taxes and considered a MA resident regardless of her location. Based on the fed laws and the MA instructions, if you enlisted as a resident you are considered a resident (and thus all income MA txable) until you un-enlist or can strongly prove you changed domicle. I read somewhere that the "Home of Record" is a key decision in this process and belive it always remained MA for her.

The concern is more with the husband as MA is trying to tax his AK earnings as MA taxable saying that he is also a resident. I think the goal for this year will be to prove that he changed his residency from MA to AK; though I'm looking for some help in rulings / guidance that: 1) husband & wife can have different domiciles 2) best info / records to prove change in domicle.

Trillium (talk|edits) said:

11 November 2010
Patob, it won't affect your 2006 situation, but since you seem to be looking for support for the H/W having different domiciles, you might be interested in the very recent (2009) legislation that changed things so that military spouses can retain original domicile similarly to how it's always been for members of the military - see Military Spouses Residency Relief Act, and the related Notice 2010-30.

Clearly, if legislation was needed to make this happen, prior to the legislation separate domiciles would have been the norm. (To see how that affects individual taxpayers, you could pick out some of the discussions here that seem to deal with domicile: Category:Military.)

As far as proving a change in domicile for the non-military spouse, more than a handful of discussions on this site will send you to the 121 regs for info about that info about proving residence, which could be helpful (edited because Katie's correct, I conflated two things improperly), e.g., Reg. 1.121-1(b)(2).

KatieJ (talk|edits) said:

11 November 2010
There is so much confusion here, it's hard to know where to begin.

First, domicile and residence for state income tax purposes are related but are not the same thing. Your domicile is your true, fixed and permanent home; the place to which, whenever absent, you intend to return. Your residence for tax purposes is as defined by state law. Generally, a person's domicile is also his or her residence for tax purposes. However, depending on state law, a person may be a tax resident of a state other than his or her domicile. Most state laws provide that an individual who maintains a place of abode in the state and is present there for a certain period of time (often, 183 days of the taxable year), or who is present in the state for a purpose that is not temporary or transitory, is a tax resident, regardless of where his or her domicile may be. Similarly, some state laws provide that a domiciliary may be a nonresident under some circumstances. Under Massachusetts law (Mass. Gen. L. Chapter 62 §1(f)) a domiciliary is always a tax resident, but in California, for example, a domiciliary who is absent from the state on permanent (i.e., not temporary) military orders is a nonresident. Sometimes the same person is a domiciliary resident of one state and a statutory resident of another state at the same time.

Federal law (Servicemembers' Civil Relief Act) prevents a state from considering an active duty military member to have changed domicile or tax residence solely by reason of being stationed elsewhere on permanent military orders. That means the state where a member is stationed cannot treat that person as a tax resident unless he or she has taken other steps to change domicile to that state. It also means that the state where the member was domiciled on entering the service remains his or her domicile for state tax purposes until positive steps are taken to change it.

In order to change your domicile, generally you must meet all of three conditions: (1) abandon your previous domicile (physically move away from it); (2) move to and reside in a new location (light somewhere); and (3) intend to remain in the new location permanently or indefinitely.

When you enter the service, the place where you were domiciled at that time is recorded by the military as your "home of record." Technically that is the place to which the military promises to pay your way when you separate from the service. For tax purposes, states generally refer to the home of record as a convenient proxy for domicile, since presumably it is the place to which, when absent, the military member intends (eventually) to return. As a result, in order to change a member's domicile for state income tax purposes, it is usually necessary to change the military home of record. When and under what circumstances the military service will do that is up to the service. A member whose home of record has not changed may be able to show a change of domicile, but will bear a heavy burden of proof that all of the conditions listed above have been met, whereas a change of home of record often will be accepted without question.

As Trillium notes, the SCRA was recently amended, effective for years beginning on or after January 1, 2009, to provide the same protection of domicile and residence to the civilian spouse of a military member, PROVIDED that the spouse and the military member have the same domicile. The new rule does not apply if the spouses had different domiciles to begin with. Also, I have to disagree with Trillium about the application of the IRC Sec. 121 regs to this issue. While those facts are relevant to the determination of domicile, they are not in themselves determinative; in fact, they are more indicative of tax residence than of domicile. It is entirely possible, and often happens, that an individual's principal residence for Sec. 121 purposes is not his domicile. In fact, in the military context, a member often does not maintain a place of abode in the domicile state at all.

So in order to deal with Patob's question, we would need to know where the civilian spouse was domiciled to begin with. Was he also domiciled in MA, or somewhere else? It often happens that a military member, domiciled in State A, while stationed in State B meets and marries a local resident, who is domiciled in B. If the couple then moves to State C under military orders, the civilian spouse probably doesn't acquire a new domicile (because he or she doesn't intend to remain in C permanently, only as long as the military spouse is stationed there), but may become a tax resident of State C, depending on C's definition. Even under the new law, the civilian spouse would be subject to State C's statutory definition, because the spouses had different domiciles when they arrived there.

Alaska has no individual income tax, and therefore has no statutory definition of an income tax resident. If it had a time-and-abode residency statute similar to Massachusetts, Patob's H would have been an Alaska resident in 2006, subject to Alaska tax on all of his income, from all sources. He would also have been a Massachusetts resident if his domicile was there. Massachusetts would have given him credit, however, for the tax he paid to Alaska on his earnings there.

Since H was present in Massachusetts for only one month during 2006, he was not a MA resident unless he was domiciled there. MA taxes unemployment compensation of a nonresident only if it was related to previous MA employment (Mass. Regs. Code 830 CMR §62.5A.1(3)(c)(9)). If he was domiciled in MA, all of his income in 2006 was subject to MA tax. If he was domiciled somewhere else, you must look to the laws of that state to determine whether he was taxable as a resident there.

KatieJ (talk|edits) said:

11 November 2010
PS - suppose, for the sake of an example, that H was domiciled in California when he married W, a military member domiciled in MA. He then left California to accompany W to MA on a military assignment there, and from there went with her to Alaska. His domicile would remain in California; however, since he left California to join his wife on a military assignment elsewhere, he would be a nonresident under Calif. Rev. & Tax. Code Sec. 17014 (his absence is for a purpose that is not temporary or transitory). So, where would he be a state tax resident in 2006? Nowhere. Is this possible? Anomalous, perhaps, but not at all impossible. In fact it happens more often than you might think.

R2 (talk|edits) said:

11 November 2010
Patob, the MA DOR cannot prevent a married couple from having different domiciles. Domicile is a factual issue, not an elective issue. In this case, the wife declared her state of domicile to be MA. In the husband's case, you might want to look at where he votes or owns property.

Patob109 (talk|edits) said:

11 November 2010
I see the difficulting in sorting through all the facts to try to apply the different relevent state codes Katie. Then this has to be looked at twice to see how the W & H should each file.

FYI - Both the H & W were always MA residents & domiclied there until 2006. It seems like the best appraoch to pull enough support to prove a change in the H domicle to Alaska in 2006.

I also did not read the SCRA fully enough to learn that it is possible for the military member to have changed their domicle which in the service, though that will require true relocation.

KatieJ (talk|edits) said:

12 November 2010
You won't find that in the federal law. However, the federal law only prohibits the states from considering a military member's domicile to have changed. It doesn't prohibit the member himself or herself from taking steps to change domicile.

There was a time when most states considered a husband and wife always to have the same domicile -- usually the husband's. There are old California cases where a wife who had never set foot in California was held to be domiciled in California because she had married a California domiciliary. However, the California law specifically changed in the mid-1970s to provide for spouses to have different domiciles. I don't believe there is a case anywhere in the last 20 or 30 years where a wife was considered to assume her husband's domicile. At least I haven't seen one.

As for your clients, I think it would be very unlikely that MA would agree that the husband had acquired a new domicile in Alaska if the only reason he was there was to accompany his military wife who was still domiciled in MA. The only way it would probably fly would be if the spouses became estranged and the husband intended to remain in Alaska when the wife was transferred elsewhere. States generally take a pretty dim view of attempts to change one's domicile to a no-tax state. He would assume a very heavy burden of proof, backed up by his actions, to show that he intended to remain in Alaska permanently.

Patob109 (talk|edits) said:

12 November 2010
I find Katie's response to e a bit depressing.

While he moved out to be with his wife, a true feeling.

he has an Alaskan job, divers license, voter registration, maybe joins a few clubs / church out there.

they own no MA property and their only tie back is through family.

It seems pushy that the state can get into you head and try to pull a "you intend to return" when: 1) you have no (or at least little) call as to where the wife will get station 2) no ties beyond family (which may be familys that never want to see each other again) to the state and no plan as where to go next

I would think that is enough to change up your domicle. Since the Husband is not dubject to the SCRA for 2006 (since it didn't apply) I would think he would need to go through the normal approach of proving changes in domicle to MA.

R2 (talk|edits) said:

12 November 2010
If he votes in Alaska, he is a legal resident of Alaska, not MA.

KatieJ (talk|edits) said:

13 November 2010
It may make him a "legal resident" if that term is defined by Alaska law. However, it doesn't determine his domicile. It is one item to be taken into consideration, but is by no means determinative by itself.

If it were, every Californian who was going to be out of the state for a month would register to vote in Nevada <G>.

R2 (talk|edits) said:

13 November 2010
As I understand it though, the husband does not reside in AK. If that is true, then the only way that he could legally vote in AK is to represent that he is domiciled in AK.

KatieJ (talk|edits) said:

14 November 2010
What he represents to Alaska, and what Alaska agrees to, won't cut any ice with Massachusetts. While it is true that a person has only one domicile at a time (a concept that seems somewhat archaic in these increasingly mobile times), that doesn't prevent two states from claiming the same individual as a domiciliary. Generally the U.S. Supreme Court has declined to intervene (remember Mr. Dorrance, the Campbell's Soup king).

I don't think you can fix 2006 retroactively; W was still domiciled in Massachusetts and while it is entirely possible for spouses to have different domiciles, it isn't likely to be accepted (by MA) in this fact scenario. Unless the couple is estranged, it isn't likely that he really intends to stay in Alaska when she goes somewhere else.

Going forward, if this couple is still in Alaska, they might consider changing W's military home of record to Alaska, assuming her military service will do that. Since California considers a military domiciliary to be a nonresident when absent on military orders, it sometimes happens that a member who is about to be transferred out of California will change his or her home of record from a "grabby" state like Massachusetts to California. I've heard of people doing that. Anyway, if the military spouse's home of record is changed, the civilian spouse's domicile probably also will be accepted as changing. Although I'm sure there are exceptions, in general the states just take home of record for domicile and go away.

R2 (talk|edits) said:

14 November 2010
Nothing I see here suggests that the husband is an MA domiciliary. My answer would change if the husband tells his tax advisor that he has every intention of returning to MA when his wife leaves the armed forces.

KatieJ (talk|edits) said:

14 November 2010
What I see, and I may be mistaken as to the facts, is that he was a MA domiciliary when he and W left MA due to her military assignment. I don't see that he has done anything that would convince MA that he has changed his domicile to Alaska.

CrowJD (talk|edits) said:

14 November 2010
The man is going to have a hard time convincing the government he has an Alaska domicile if his tax advisor is in MA. Pantob needs to hand him off to an Alaska preparer. Also, I would advise the TP to build himself an igloo on Indian territory and have some pictures taken of himself standing in front of the igloo, and become an honorary tribe member. This could confuse the matter even further by getting Indian law involved. A small igloo should have room for at least one slot machine to finance his legal battles.

Seriously, I've never read this Act (I usually peter out after reading the preamble), but doesn't it have a line in it that says "nothing herein shall prevent the servicemember from changing their domicle while still a member of the service on active duty"? I don't know.

R2 (talk|edits) said:

14 November 2010
Yes, for 2009 and future years, if the non-military spouse is absent from MA solely for the purpose of being with his wife who is stationed outside of MA, then he cannot lose his MA residence as a result of his absence from MA.

In this case, I am arguing that for the 2006 year, if the husband had the intent to remain in AK permanently or indefinitely, then he established a new domicile. Proving this would be an entirely different matter. I agree with Katie that merely voting in another jurisdiction would not by itself demonstrate such an intent.

Quoting from MA TIR 09-23,

That intent is borne out by facts and circumstances such as owning property, registering to vote, titling and registering automobiles, or preparing a will in the state

NoVATaxes (talk|edits) said:

14 November 2010
While stationed there, I changed my legal residence to Texas. I registered and titled my car, registered to vote, maintained bank accounts, and did my will, all in Texas. I continued those ties even after moving out of Texas, and sometimes that meant paying more sales tax to Texas for a new car than locally. My Home of Record remained the state where I entered active duty, however. The HOR never changes because it is a determinative factor in how far the military would move you after you separate. The military did not have a problem with changing my legal residence.

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