NJ Military Income

First: Texas has no personal income tax. Secondly: A member of the military remains a resident of the state in which he/she enlisted unless they can show that they have had a change in residence. As such you would be subject to tax by NJ if you have remained a resident.

NJ has a publication that explains this. See:

A person who is domiciled in NJ is a resident for tax purposes unless he or she meets all of three requirements: (1) does not maintain a permanent place of abode in NJ; (2) does maintain a permanent place of abode somewhere else; and (3) spends no more than 30 days of the taxable year in NJ. N.J. Rev. Stat. §54A:1-2(n).

So for military member whose home of record (a convenient proxy for domicile) is in NJ is a NJ resident while absent on military orders unless he or she maintains a "permanent place of abode" somewhere other than in NJ, and meets the other two requirements of the statute. Here is what the form instructions say about a "permanent place of abode" for a military member:

"A member of the Armed Forces whose home of record is New Jersey and who is stationed outside the State (whether living in barracks, billets, apartment, or house) and does not intend to remain outside New Jersey, continues to be a resident and must file a resident return and report all taxable income. However, if a serviceperson pays for and maintains facilities such as an apartment or a home outside of New Jersey, either by out-of-pocket payments or forfeiture of quarters allowance, such facilities will constitute a permanent home outside of New Jersey. In this case, the serviceperson is not considered a New Jersey resident for tax purposes."

So a military member domiciled in NJ does not ALWAYS remain a NJ resident. A barracks or other military housing is not a "permanent place of abode," but an apartment, condo or house purchased or rented by the member out of his own pocket is one.

Katie in San Diego

Oh, and P.S.: Even if Texas did impose an individual income tax, an active duty servicemember stationed there would not be subject to Texas income tax on his or her military compensation. Federal law (the Servicemembers' Civil Relief Act) prevents states from considering a servicemember to have changed domicile or residence by virtue of military station assignment, nor a state tax military compensation earned in the state by a nonresident on a source basis.

Katie in San Diego

Oh, and P.S. -- even if Texas did impose an individual income tax, it could not tax a NJ resident servicemember's military compensation. Federal law (the Servicemembers' Civil Relief Act) prevents states from considering a servicemember to have changed domicile or residence by virtue of military station assignment. Nor can a state tax a nonresident servicemember's military compensation on a source basis.

If the member were stationed in a state that does impose an individual income tax, he would be taxable only on income with a source in that state. That would include, for example, income earned from a part- time civilian job, or income from property or business activities carried on in the state (either directly by the individual or through a flowthrough entity such as an LLC, partnership, S corporation, etc.)

If the member owns or rents a home in Texas that he pays for out of his own pocket, he is not subject to state income tax anywhere.

Katie in San Diego

Katie,

I'm not sure about the interpretation that excludes barracks or other military housing. The reasoning is that if the military member is being housed in barracks or other military-provided housing, they then forfeit their quarters allowance.

That is precisely the case that seems to be covered by the clause that says forfeiture of quarters allowance is sufficient to qualify the housing as the permanent place of abode outside of NJ. Or am I reading this incorrectly?

I agree that the instruction is ambiguous. However, it's extremely unlikely that NJ would consider military housing (barracks, etc.) to be a "permanent place of abode." I think what they mean is that payment for an off-base house or apartment qualifies if it is made either out-of-pocket or by forfeiture of the quarters allowance.

Here's a more detailed statement, from NJ Technical Bulletin No. TB-25, 01/11/1994:

"Military Personnel: Residents. A member of the Armed Forces whose home of record (domicile) is New Jersey when entering the service remains a resident of New Jersey for income tax purposes, and must file a resident return even if assigned to duty in another state or country, unless he or she qualifies for nonresident status. A New Jersey resident is subject to tax on all income, including military pay, regardless of where it is earned, unless the income is specifically exempt from tax under New Jersey law.

"A member of the Armed Forces whose home of record is New Jersey and who is residing aboard a ship or in barracks, billets or bachelor officers' quarters is not considered to be maintaining a permanent home outside of New Jersey and would, therefore remain a resident taxpayer. However, if a serviceperson pays for and maintains facilities such as an apartment or a home outside of New Jersey, with the intent of remaining there permanently and beyond the person's tour of duty, such individual has changed domicile. In this case, the serviceperson will no longer be considered a New Jersey resident, provided or she also satisfies the remaining requirements for nonresident status."

The words "and beyond the person's tour of duty" are italicized in the original for emphasis. Thus the bulletin's interpretation of "permanent place of abode" seems even narrower than the form instructions.

Of course all this is just the DOR's administrative interpretation of the statute. There is no case law or regulation on it that I could find.

Katie in San Diego