Ask a JAG

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Q: Does living in Germany, and serving in the military in general, affect whether I am required to pay state income tax?

A: Unless you are domiciled in a state that has no income tax or does not tax military income, you must pay state income tax, even though you live abroad.  
Each American is a domiciliary, or legal resident, of a particular state. A person becomes a domiciliary of a state when he or she is both present there and intends to remain indefinitely. A person does not lose domicile until he or she establishes it in another state.

Courts and state tax agencies cannot, of course, read minds and must therefore look for evidence of one’s intent to remain somewhere indefinitely. Various factors can provide proof, including where a person owns a home, holds a driver’s license, and is registered to vote.

Yet, an 18-year-old man who enlists and leaves his home in Indiana to serve in the Army for 20 years might spend very little time in the Hoosier State until retirement at 38. Thanks to the Servicemember’s Civil Relief Act (SCRA), however, he may maintain his domicile in Indiana as long as he does not abandon his intent that Indiana be his permanent home.

Therefore, he will continue to be subject to Indiana state income tax and receive the benefits of Indiana domicile, such as access to in-state tuition rates at Indiana state colleges. And, thanks to the SCRA, no state that he moves to solely due to military orders will be able to tax his military income.

Further, because of a new law, the same protection now applies to income earned by military spouses. Nevertheless, as service members move from assignment to assignment, it is important that they retain ties to wherever they intend to be domiciled. This will help avoid questions about where they should be paying state income tax.

This does not mean, however, that our example Soldier cannot change his domicile. Although he cannot simply choose any domicile he wants, as long as he is present in the state that he intends to be his permanent home, he may establish domicile there. Along with the steps mentioned above, ways to do so include buying land or a home there, registering a vehicle, and executing a new will that indicates the new domicile.

Please remember that the Stuttgart Tax Center is now open full time and has friendly and well-qualified tax preparers who can help you.  You can stop by any weekday or call 421-4588/civ. 0711-729-4588 to make an appointment.

This column is not intended as individual or specific legal advice. If you have specific issues or concerns, you should consult a judge advocate at 421-4152/civ. 0711-729-4152.