Military Taxation in CA Part I – Domicile, Residency, and CA Residents

Originally published in the Cedar Street Times

February 8, 2013

Here in this little part of California that some call heaven, we have a number of military related institutions drawing servicemembers from around the world. The next few articles will focus on military taxation in California.

The first thing we need to do is define a few important terms.

Home of record is a term that indicates the place you were living when you entered the military, and cannot be changed.  This generally does not affect taxation, but can affect benefits.

Your residence is the place you are physically living.

State of legal residence for military purposes is typically synonymous with domicile to be discussed next.  Do not confuse this with legal residence which you see on many non-military legal forms indicating a desire to know your residence address as opposed to your mailing address!

Domicile is the place that you consider your permanent home; if you are living away from your home, it is the place you would return to after being absent for temporary or transitory purposes  (or away on military orders).  It is usually the place you are registered to vote, have your bank accounts, have your driver’s license, register your vehicles, perhaps still own a home and store personal items, etc.  You have the option of changing your domicile by making convincing changes to items such as the above, but you generally have to be present in the state at the time, show that you have abandoned your prior domicile, and notify the military of this change.

Residency more closely determines how you are to be taxed, but is affected by domicile.  For a civilian, residency is a term given if someone is in California for other than a temporary or transitory purpose (generally nine months or more), or conversely someone whose domicile is in California but out of the state for temporary or transitory purposes.

For a military servicemember, residency is even more closely tied to domicile.  A military servicemember whose domicile is California is considered a resident if stationed in California, and a non-resident if stationed elsewhere due to Permanent Change of Station (PCS) orders (not temporary orders regardless of duration).  A military servicemember whose domicile is outside of California but that is stationed in California is considered a non-resident unless he or she works to change his or her domicile to California.  Most people are trying to get out of California taxation, so I rarely see military people changing their domicile to California!

Now let’s start to talk about what this means for tax purposes, including how it affects spouses.  Based on the above definitions we will start with those that are considered California residents (again, those that are domiciled and stationed in California).  It is pretty straight-forward:  these individuals are taxed on all their income including their military income.  The spouse will generally also be considered a resident and will be taxed the same, unless the spouse is also a military servicemember, and has a different domicile.  That spouse would then be a nonresident and taxed differently.

In my next column in two weeks, we will begin talking about nonresident military personnel, which accounts for the majority of servicemembers living in this area.

Prior articles are republished on my website at www.tlongcpa.com/blog.

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

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