Three Army officers previously stationed in California are wondering why they got state income tax bills from California, even though they are now legal residents of other states.
They put their heads together and found they had all gotten notices from the California Franchise Tax Board, informing them they owed state taxes for the time they had served there.
The notices were received at various times over the last few years, but one officer's bill, dubbed a "final notice," was dated Nov. 23 and warned that a payment of $2,555.19 was due Dec. 8.
Each did exactly what should have done — called the tax board and got it worked out. None had to pay anything.
But they wondered what's going on with the state of California, and why they were getting these bills in the first place.
Under the Servicemembers' Civil Relief Act, service members who transfer to a state other than that of their legal residence or domicile do not have to pay state income tax on military income in the state to which they are transferred. Military income can only be taxed by a military member's state of legal residence — his "home" state.
"My concern is that there may very well be young enlisted soldiers, sailors, airmen and Marines who are more trusting and fearful of authority who will pay the state of California even if they don't really owe any money," wrote Army Maj. Matt Templeman, who received a notice from California in 2008 stating he owed about $727.
The states get information from the Internal Revenue Service saying that a person has filed a federal tax return from a California address, said Denise Azimi, spokeswoman for the California Franchise Tax Board.
"We do have a system in place that should work for most people, so that we don't contact people who have income solely from military wages," Azimi said.
Tax officials look at the circumstances in each case for indicators of income from other sources, which would be taxable by the state.
State officials also get information from the Defense Finance and Accounting Service, including information about legal residence, and they cross-check the information, she said.
It's not clear whether there was insufficient information from DFAS or if tax officials saw something else that made them believe these three service members needed to pay California taxes, she said. Tax officials receive more than 300 million pieces of data each year from other sources, such as employers, she said.
"At each step of the process, we tell them that if they don't think they owe it, they should contact us," Azimi said.
Each of the service members who received a notice was able to work out the issue over the phone with the tax office, including the service member who received the "final notice" in November — his first notification that taxes were due for 2006.
Azimi said the filing enforcement process is always a year in arrears, so the state doesn't start pursuing tax bills until a year after the taxes were due, which gives time for records and other information to be sorted out.
Even if you believe you don't owe anything, it's important never to ignore these notices, Azimi said.
Troops who receive such a notice should always take action to resolve the issue as quickly as possible, said Army Col. Shawn Shumake, director of the office of legal policy for the undersecretary of defense for personnel and readiness.
"Always go as fast as you can to legal assistance attorneys on the installation," Shumake said.
Those attorneys can quickly help find the reason for the tax notice, figure out whether you really do owe money and get the issue resolved.
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