BEFORE THE Department of REVENUE

OF THE STATE OF MONTANA

 

In the matter of the amendment of ARM 42.15.214 pertaining to resident military salary exclusion

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NOTICE OF AMENDMENT

 

TO: All Concerned Persons

 

1. On October 15, 2015, the Department of Revenue published MAR Notice No. 42-2-938 pertaining to the public hearing on the proposed amendment of the above-stated rule at page 1679 of the 2015 Montana Administrative Register, Issue Number 19.

 

2. On November 4, 2015, a public hearing was held to consider the proposed amendment. James C. Wangerin and Walter Wangerin appeared and testified at the hearing. Other members of the public attended the hearing, but did not testify. The department also received written comments from James C. Wangerin.

 

3. Based upon the comments received and after further review, the department has amended ARM 42.15.214 as proposed, but with the following changes from the original proposal, new matter underlined, deleted matter interlined:

 

42.15.214 RESIDENT MILITARY SALARY EXCLUSION (1) remains as proposed.

(2) Military compensation that is not exempt from Montana income tax includes:

(a) salary received for annual training and inactive duty training for service not described in (1)(b) or (1)(c);

(b) through (3) remain as proposed.

 

4. The department has thoroughly considered the comments and testimony received. A summary of the comments received and the department's responses are as follows:

 

COMMENT 1: James C. Wangerin stated that the documentation required from a National Guard member to verify the right "active duty" status required to qualify for an exemption is not well defined in ARM 42.15.214. He stated that the Servicemembers Civil Relief Act (SCRA) certificate and the fact that the federal government does not withhold based on a determined exemption eligibility should be sufficient for the department to make the same determination. He further stated that the SCRA certificate should be conclusive evidence of eligibility for the exemption and feels that this certificate should be included in the proposed amendments to the rule as an item for determining eligibility.

 

RESPONSE 1: The department agrees that the SCRA certificate is a good resource to help substantiate a service member's branch of service and duty status, and appreciates Mr. Wangerin's efforts to make the department aware of this tool. However, the SCRA certificate cannot be relied upon as a definitive verification to determine the military salary exclusion for Title 32 service.  The certificate itself states, "SCRA protections are for Title 10 and Title 14 active duty records for all the Uniformed Services periods. Title 32 periods of Active Duty are not covered by the SCRA, as defined in accordance with 10 U.S.C. 101(d)(1)."

 

COMMENT 2: Mr. Wangerin stated that if the federal Defense and Accounting Service (DFAS) does not withhold Montana taxes from the pay of a National Guard member, that should be sufficient proof that the member is exempt from the Montana withholding tax.

 

RESPONSE 2: The absence of Montana tax withholding cannot be relied upon as definitive proof that an individual is exempt from Montana income tax, because withholding amounts are susceptible to errors. This is evident in the situation with Montana's National Guard service members, who should have Montana tax withheld from their wages. An employer not withholding income tax from an employee's pay does not discharge the employee's liability for those income taxes.

 

COMMENT 3: Mr. Wangerin commented that the President of the United States has declared a state of national emergency in all years since September 11, 2001. Under the declaration, the National Guard continually conducts training in anticipation of acts of terrorism, both within the United States and overseas. This declaration should be sufficient to qualify National Guard members for exemption during annual training and inactive duty training. Once there is no longer a national emergency declaration, a guard member's pay would no longer be exempt.

 

RESPONSE 3: Section 15-30-2117, MCA, does not provide a blanket exemption for the National Guard for periods when the President of the United States has declared a state of national emergency unless the guard member's orders for that time period are issued pursuant to Title 10, U.S.C., or when their specific service is deemed a "homeland defense activity," as defined in 32 U.S.C. 901, or a "contingency operation," as defined in 10 U.S.C. 101, and the person was a member of a unit engaged in a homeland defense activity or contingency operation.

 

COMMENT 4: Mr. Wangerin also stated that when a service member returns from overseas and is on a mandatory 30-day paid leave status, the pay received for that time period should also be exempt from withholding.

 

RESPONSE 4: Section 15-30-2117, MCA, does not provide an exemption for service members during a period of time following their return home from overseas duty unless their orders for that time period are issued pursuant to Title 10, U.S.C., or when their specific service is deemed a "homeland defense activity," as defined in 32 U.S.C. 901, or a "contingency operation," as defined in 10 U.S.C. 101, and the person was a member of a unit engaged in a homeland defense activity or contingency operation.

 

COMMENT 5: Mr. Wangerin further summarized his questions regarding the proposed amendments as follows:

One: Prior to January 1, 2016, should the SCRA certificate be considered prima facie evidence of National Guard pay exemption for the period covered?

Two: After January 1, 2016, should the SCRA certificate be considered prima facie evidence of National Guard pay exemption for the period covered?

Three: Is National Guard pay exempt from Montana income tax if the guard member's Title 32 orders are in response to a national emergency?

Four: Is National Guard pay exempt for Montana income tax if the guard member is under Title 32 orders in response to a contingency operation?

Five: Is National Guard pay exempt from Montana income tax if the guard member is under Title 32 orders in support of or participating in a training mission, or for training in anticipation of a mission in response to a contingency operation?

 

RESPONSE 5: Regarding one and two, as provided in the department's response to Comment 1, the SCRA certificate is a good resource to help substantiate a service member's branch of service and duty status, but it cannot be relied upon as a definitive verification to determine the military salary exclusion for Title 32 service.

Regarding three, National Guard members serving during periods when the President of the United States has declared a state of national emergency would qualify for the exclusion when they are ordered to active duty pursuant to Title 10, U.S.C., or when their specific service is deemed a "homeland defense activity," as defined in 32 U.S.C. 901, or a "contingency operation," as defined in 10 U.S.C. 101, and the person was a member of a unit engaged in a homeland defense activity or contingency operation in accordance with 15-30-2117, MCA.

Regarding four, if a National Guard member is serving on active duty ordered under Title 32 for a "homeland defense activity," as defined in 32 U.S.C. 901, and that service member is part of a unit engaged in a "contingency operation," as defined in 10 U.S.C. 101, then the salary received by that service member is likely exempt from Montana income tax pursuant to 15-30-2117(2)(b)(ii)(B), MCA.

Regarding five, National Guard members who provide support or conduct training activities during, leading up to, or following a contingency operation, would not necessarily qualify for the exclusion. The only time they would qualify for an exemption is when a servicemember's orders are issued pursuant to Title 10, U.S.C., or when their specific service is deemed a "homeland defense activity," as defined in 32 U.S.C. 901, or a "contingency operation," as defined in 10 U.S.C. 101, in accordance with 15-30-2117, MCA, and when the person was a member of a unit engaged in a homeland defense activity or contingency operation.

 

COMMENT 6: Mr. Wangerin stated that national disasters are included in the definition of a contingency operation under the National Defense Authorization Act for fiscal year 2012 (Publication L112-81, enacted December 31, 2011) and, therefore, a guard member's service in accordance with the Act should be considered service in a contingency operation.

 

RESPONSE 6: If a National Guard member's duty meets the definition of a contingency operation, as defined in 10 U.S.C. 101, then the guard member's salary would be exempt pursuant to 15-30-2117(2)(a)(ii)(B), MCA. Since this is already provided for in ARM 42.15.214, there is no need to provide any additional explanation.

 

COMMENT 7: Mr. Wangerin stated that the SCRA certificate should be considered prima facie evidence for the period covered. National Guard pay is exempt from Montana income tax if the guard member is serving under Title 32 orders issued in response to a national emergency.

National Guard pay is exempt from Montana income tax if the guard member is serving under Title 32 orders issued in response to a contingency operation. This provision would also apply to dual-status military technicians who are serving as trainers in anticipation of a mission related to overseas contingency operations.

National Guard pay is exempt from Montana income tax if the guard member is serving under Title 32 orders in support of a training mission or for training in anticipation of, or in support of, a mission in response to a contingency operation.

 

RESPONSE 7:   As detailed in Response 1, and again referenced in Response 5, the department recognizes the SCRA certificate as a good resource, but it cannot be relied upon as a definitive verification to determine the military salary exclusion for Title 32 service.

Section 15-30-2117, MCA, does not provide an exemption for service members who are training or providing other support in anticipation of a mission related to overseas contingency operations unless their orders for that time period are issued pursuant to Title 10, U.S.C., or when their specific service is deemed a "homeland defense activity," as defined in 32 U.S.C. 901, or a "contingency operation," as defined in 10 U.S.C. 101, and the person was a member of a unit engaged in a homeland defense activity or contingency operation.

 

COMMENT 8: Mr. Wangerin commented that that the exclusion of annual training in the proposed amendment to ARM 42.15.214(2)(b) should be deleted, as annual training can occur as part of a contingency operation.

 

RESPONSE 8: The department appreciates Mr. Wangerin's suggestion and has further amended ARM 42.15.214(2)(a) to address the issue he raises. The change in the rule will clarify that the exclusion does not apply to annual training or inactive duty training unless such service qualifies as a "contingency operation" or a "homeland defense activity."

 

COMMENT 9: Mr. Wangerin requested that the department make additional amendments to ARM 42.15.214 in support of the testimony and comments offered at the hearing. He asked the department to further amend the rule to include the following:

A definition for "active duty" to include any duty performed by a National Guard member pursuant to Title 10 U.S.C., or Title 32 U.S.C. for homeland defense activity or contingency operation; and language stating that a guard member supporting a military operation is considered to be participating in a contingency operation and combat duty is not required; that a contingency operation is created when a governor requests federal assistance in responding to a major disaster or emergency and also includes any operations in connection with national emergencies in response to acts of terrorism; that an SCRA certificate is sufficient evidence for exemption from Montana income tax if National Guard pay is received under Title 32; and that National Guard members should be exempt for the following: active duty in the air defense alert program, dual status military technicians called to active duty under Title 32 as trainers related to overseas contingency operations, duty under Title 32 for a southwest border mission, while on mandatory 30-day leave following overseas duty, annual training and inactive duty training missions or for training in anticipation of a contingency operation, active guard and reserve duty.

 

RESPONSE 9: The department appreciates Mr. Wangerin's suggestions, but disagrees with the need to further amend the rule.

Section 15-30-2117, MCA, provides a definition of "active duty" in the National Guard, which is duty performed by a National Guard member pursuant to Title 10 U.S.C., or Title 32 U.S.C. for a "homeland defense activity," as defined in 32 U.S.C. 901, or a "contingency operation," as defined in 10 U.S.C. 101, and the person was a member of a unit engaged in a homeland defense activity or contingency operation.

The department agrees that if a National Guard member is ordered to service as part of one of these situations, then their salary should be excluded from the calculation of Montana income tax. National Guard service in the air defense alert program, as a dual status military technician, as a trainer, while on mandatory leave following overseas duty, while performing annual or inactive duty training, or in any other situation may or may not qualify for the exemption depending on if the service member is ordered to duty pursuant to Title 10 U.S.C., or Title 32 U.S.C. for a "homeland defense activity," as defined in 32 U.S.C. 901, or a "contingency operation," as defined in 10 U.S.C. 101, and the person was a member of a unit engaged in a homeland defense activity or contingency operation.

 As previously explained, the SCRA certificate is a good resource, but cannot be relied upon as a definitive verification to determine the military salary exclusion for Title 32 service.

 

COMMENT 10: Mr. Wangerin also suggested that the department amend ARM 42.15.514(2) to set out when military compensation is not exempt, as follows:

Pay under orders of state active duty in the National Guard;

Pay under Title 32 orders when the member is not in a deployable unit;

Pay under Title 32 when there is no declaration of national emergency or a declaration of war by Congress.

 

RESPONSE 10: The department appreciates Mr. Wangerin's additional suggestions for amendments, but disagrees with the need to further amend the rule.

The department agrees that in most cases, duty performed in these particular situations will not qualify for the exemption. In every case, the determination needs to be made based on if the National Guard service member is ordered to duty pursuant to Title 10 U.S.C., or Title 32 U.S.C. for a "homeland defense activity," as defined in 32 U.S.C. 901, or a "contingency operation," as defined in 10 U.S.C. 101, and the person was a member of a unit engaged in a homeland defense activity or contingency operation.

 

COMMENT 11: Walter Wangerin testified stating his support for the comments and statements made by James Wangerin.

 

RESPONSE 11:  The department appreciates the comments from both Mr. James Wangerin and Mr. Walter Wangerin.   Their contributions provide the department with helpful insight into ways the department can better serve members of the military.

 

 

/s/ Laurie Logan                                    /s/ Mike Kadas

Laurie Logan                                         Mike Kadas

Rule Reviewer                                       Director of Revenue

 

         

Certified to the Secretary of State December 14, 2015