Legal residence: It’s not just state taxes


By Kate Horrell, Military.com

Many military members, and their spouses, are legal residents of states that do not have state income taxes.  It’s understandable, because everyone likes to save on taxes.  But changing your state of legal residence only to avoid state income taxes can be shortsighted.  There’s a lot more to your domicile, or state of legal residency, than just taxes.

Reminder: I’m not a lawyer. This is to get you thinking, not to provide legal or tax advice.

How You Get To Pick

Generally speaking, civilians change their domicile whenever the move.  If you move to California for a new job,  you become a resident of California.  Military members, and their spouses, have the privilege of retaining a previous state of residency.

The Servicemembers Civil Relief Act (SCRA) is a federal law that says,

“A servicemember shall neither lose nor acquire a residence or domicile for purposes of taxation with respect to the person, personal property, or income of the servicemember by reason of being absent or present in any tax jurisdiction of the United States solely in compliance with military orders.”

What that means is that military members do not automatically become a resident of a state because they have moved there on military orders, and they are permitted to retain their legal residency in a state where they lived before.

The Military Spouses Residency Relief Act (MSRRA) amended the SCRA to permit military spouses to retain legal residency in a state if they move away due to their active duty husband or wife’s military orders, as long as the spouse and the military member are both retaining the same state of legal residence.  (State law may vary, the SCRA is a federal law.)

The idea behind these laws is that a military member would pick the state where they intend to make a permanent home.  In reality, however, military families tend to establish residence in one of the states that does not have state income tax.  There’s nothing wrong with that, but state income taxes aren’t the only factors that should be considered.

Homestead Exemptions for Real Estate Taxes

Many states offer tax reductions for homeowners who live in their homes.  The details vary from state, and the rules to qualify also vary.  Most states require that you be a legal resident of that state in order to claim the homestead exemption (or whatever name that state uses.)

College Benefits

Military service members and their dependents may receive in-state tuition in their state of legal residence in addition to the state in which they actually reside.  In addition, some states provide discounts or waivers of tuition for veterans, disabled veterans, and/or children of certain categories of veterans.  Details vary dramatically by state.

Divorce

The state in which you file for divorce can have a big impact on the division of property and the awarding of spousal support and/or child support.  In some cases, divorcing military couples may choose to file in their state of legal residence regardless of where they are actually residing.

I know there are a lot of “some” and “it varies” in this piece.  It’s not very helpful, but it’s also accurate.   States have very different laws about all sorts of things, as you’ve certainly learned from moving about with the military.  For answers to your specific situation, you need to check the specific state laws for the state in which you are a legal resident, or the state in which you are considering moving your legal residence.  Considering all the implication of changing your state of legal residence requires that you do a little research and some serious thinking.  Picking a state solely because of state income taxes may actually cost you more in the long run.

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