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California Eases State Tax Rules, Seven States Wait

By Master Sgt. Stephen Barrett, USA
American Forces Press Service

WASHINGTON, Nov. 15, 1996 – California residents currently deployed to Bosnia-Herzegovina, Croatia and Macedonia will not have to pay state tax on income earned in those areas.

The California state legislature recently approved measures providing state tax exclusions and benefits for its military residents assigned in "combat" areas.

 

California joins 42 other states adjusting their tax laws to conform with federal tax guidelines approved last March. President Clinton approved federal changes giving service members in Bosnia, Croatia and Macedonia federal tax benefits "as if they were in a combat zone."

 

These benefits include tax-free income for all enlisted and warrant officers, and extension of the federal income tax filing deadline. The law also increased officers' monthly tax exemption from $500 to about $4,200.

 

However, some service members deployed to the Bosnia region must still plan to pay state tax on their deployment income. Unless state legislatures adopt changes before the end of the year, deployed residents of Alabama, Hawaii, Mississippi, New Jersey, Oregon, Pennsylvania and Wisconsin are subject to state tax.

 

Air Force Lt. Col. David Pronchick, armed forces tax counsel, said there are different circumstances in the seven states. He said most deal with states accepting the Operation Joint Endeavor area as a combat zone and the officer exclusion.

 

"If a state has not conformed, they only recognize the pre-existing $500 exclusion," said Pronchick. Because of this, Pronchick said, officers with legal residences in Alabama, Hawaii, Mississippi, New Jersey and Wisconsin who serve in the two combat areas should prepare to pay state taxes based on existing state laws.

 

Legislation is pending in some of those states, but Pronchick said both Alabama and New Jersey tax officials have said no relief is forthcoming. "There are certain cases where people deployed have no withholding taken from their monthly paycheck to cover state taxes," he said. "They either have to hope their states change the laws or get to a finance office to increase their state tax withholding."

 

Pronchick said if necessary, service members can change their state tax withholding by specifying a dollar amount increase. This would help them avoid possible penalties and interest.

 

Tax officials in Alabama, Hawaii, Pennsylvania and Wisconsin will grant service members filing extensions and waivers on penalties. Still, the four states exclude only military income earned in the Persian Gulf region. All need law changes to exclude income earned in "qualified hazardous duty areas" such as Bosnia.

 

In Mississippi, tax officials will exclude income for warrant officers and enlisted personnel. They will not waive interest payments on late tax.

 

Military residents of Pennsylvania are exempt from paying state tax if they serve at bases outside the state. However, Pronchick said Pennsylvania residents assigned to units in the state are subject to state tax. This includes Pennsylvania-based personnel who deploy.

 

In Oregon, residents do not pay state tax on income earned while serving outside Oregon. However, all military pay for Oregon members serving in any combat zone after Aug. 1, 1990, is exempt from state tax until the president declares an end to the Persian Gulf combat zone.

 

Should that happen, Oregon officials said they would need to enact special legislation continuing benefits for those in the Joint Endeavor region.

 

Current New Jersey tax laws will not exclude military income earned in Bosnia. Also, the state will not grant filing delays, waive penalties or waive interest payments.

 

Besides the seven, there are other exceptions. New Mexico and Louisiana will exclude income, waive penalties and grant filing delays. However, the two states -- like Mississippi -- are not waiving interest payments on past taxes.

 

Some states do not require military personnel to file tax returns. Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming do not tax military income.

 

Montana, Missouri, Vermont and West Virginia exempt military income, but require service members to file annually. Service members from Connecticut, Idaho, New York and Ohio must also file annually, but their income is tax-free provided they meet nonresidency requirements.

 

Pronchick said DoD will provide updates as they become available. He added service members should get with their unit tax or legal assistance officers if they have questions about state tax requirements.

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