The SCRA further sets forth rules on how taxes apply to servicemembers and their families, and the location where a military family is stationed can affect both tax and voting issues.
As with mortgage foreclosures, the SCRA prevents the forced sale of a servicemember’s real estate without a court order. If you are faced with the sale of your home to satisfy unpaid taxes or assessments, the sale should not occur without court action. If such a court action is filed, you might be able to halt the sale if you can prove your servicemember’s military service materially affected your ability to pay the tax or assessment. The SCRA allows the court to stay or delay the collection of the tax or assessment or the sale of your property for the duration of your military service, plus 180 days after you are released from military duty.
Note: The same protections also apply to personal property, so if an item of personal property (such as a vehicle) is subject to repossession and sale because of unpaid taxes or assessments, court action is required first.
Also important: Unpaid taxes and assessments and liens filed to secure these can incur a maximum interest rate of 6 percent a year. No higher interest rate can be applied, and no other penalties or fees may be assessed.
At any time during your servicemember’s military service or up to 180 days after he or she is released from service, you can file a court case to get back any real estate or personal property you lost due to unpaid taxes or assessments. You will likely need a lawyer to file this case for you, and you still will be responsible to pay the unpaid taxes and interest on those taxes (capped at 6 percent a year). You also should ask about any right of redemption you may have under state law.
A recent court case held that the SCRA rules governing foreclosure of tax and assessment liens apply also to situations involving unpaid homeowner’s association dues. If you have this problem, meet with a military legal assistance attorney to get additional advice and guidance. Make sure the homeowners’ association is aware of your SCRA rights.
Not everyone understands “home of record” is a technical term DoD uses to designate the city and state where a servicemember enters active duty. “State of legal residence” is typically the state a servicemember considers to be his or her home — the place to which he or she plans to return after being temporarily away from it. For most servicemembers, their state of legal residence and their home of record are the same when they first enter active duty. During the course of a military career, a servicemember’s home of record will not change, but a servicemember’s state of legal residence can change. State of legal residence sometimes is referred to as a servicemember’s domicile or home state.
For most citizens, the state where they live and work is treated as their state of legal residence for purposes of voting, taxation, and other legal matters. If a citizen moves to a new state and begins a new job in that new state, the presumption is the citizen then has a new state of legal residence.
The SCRA protects servicemembers and their spouses from the automatic application of this rule — at least for taxes and voting. The presumption for servicemembers and their spouses is their state of legal residence does not change when they move to a new state based on military orders. Servicemembers and spouses must take affirmative steps to establish a new state of legal residence.
Typically, a change of legal residence occurs when you create significant legal connections to a new state that you now consider to be your home and cut those same connections to the state listed in your home of record. One example of a significant legal connection is voter registration. There are many others, often referred to as “indicators of domicile.” A change of legal residence should be reflected in your military record and on your Leave and Earnings Statement. A DD Form 2058 is used to make this change. To ensure you properly make the change to your new state of legal residence, you first should consult with a military legal assistance attorney. Failure to follow proper procedures or keep adequate records can create significant state income tax liability and other legal problems.
You are obligated to pay license fees and taxes on your vehicle only to your state of legal residence. You do not have to relicense it in the state where you are now stationed, so long as you have paid all of the licensing fees and taxes that are due to your state of legal residence.
A state may require a person living within its borders to be licensed to drive in that state. Some states provide exemptions for servicemembers, and some do not. Unlike with vehicle licensing fees and taxes, the SCRA provides no protections here. Check with the state’s licensing department to find out the rules for your state for both servicemembers and their dependents. Try to keep your vehicle registration, driver’s license, and voter registration in the same state, because, if you are ever involved in a dispute over domicile or where you really live, those things will be examined to determine where you intend to live. If you need help figuring out these rules, consult with a military legal assistance attorney.
Military pay is subject to taxation by Maryland, because Maryland is your state of legal residence. If you earned additional income from a job in Ohio, you might owe income tax to Ohio — but only on the income from your job in Ohio.
The general rule is military pay is subject to taxation only by the servicemember’s state of legal residence. Income from a second or spouse job is subject to taxation by the state where you live and work, which for most servicemembers is the state in which they are stationed. Also, the state where you live and work may tax any property or equipment you use for a business you operate.
Note: You are obligated to follow the tax filing and payment rules of your state of legal residence. Even if your state of legal residence imposes no income tax on military pay, you still might need to file a return in that state. Failure to properly file a return, even when no taxes are due, could create legal doubt as to which state has taxing authority over your military pay. Follow the rules, and get help from a military legal assistance attorney if you have any questions.
The SCRA now extends protections regarding state income tax to spouses of servicemembers. However, servicemembers and their spouses strongly are encouraged to seek counsel from a military legal assistance attorney before the spouse seeks to exempt income earned on the local economy from local state income taxes. If not done properly, the local state may seek to assess state income taxes on both the spouse’s income and the servicemember’s military income.
You are entitled to an extension to file your federal return that extends for the duration of your deployment, plus 180 days. Check with your state to find out whether you may receive a similar extension for your state tax return.
If stationed overseas in a noncombat zone, you are entitled to a two-month extension to file your federal return, which may be extended further upon request. If you are entitled to a tax refund, file your return if at all possible. Otherwise, you essentially are loaning money to the government.
If you have difficulty paying taxes due with your tax return, you might be entitled to have your taxes deferred under the SCRA, with no penalties or fees accruing. You do, however, have to show your military service has a material effect on your ability to pay your taxes. In this, and any other situation where you need an extension or deferral of your tax filing, first talk with a military legal assistance attorney.
You are entitled to retain your right to vote in your state of legal residence. You do not have to change your registration. Check with your state of legal residence on the rules for absentee voting by servicemembers. Your unit should have a voting assistance officer who can help you find the answers. The SCRA extends these rules to spouses of servicemembers.
You do have the right to change your voter registration to the state where you are currently stationed. But be careful if you make this choice: The state where you are newly registered to vote might consider voter registration as evidence that you now consider it to be your state of legal residence, entitling it to tax your income. Consider talking with a military legal assistance attorney before changing your voter registration. Try to keep your home of record for tax purposes consistent with where you vote, register your vehicles, etc.