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42.15.112    NONRESIDENT MILITARY PERSONNEL

(1) A nonresident member of the United States armed forces who is living in this state solely by reason of compliance with military orders does not become a Montana resident solely by reason of being present in this state in compliance with military orders and their compensation for military service is not Montana source income. Starting in 2009, some nonresident spouses who move to Montana solely to be with that nonresident serviceperson are also allowed to retain their home residence or "domicile" and, subject to certain rules and limitations described in (6), their wage and other personal services income is not Montana source income.

(2) Nonresident military servicepersons and their spouses are, except as provided in (4), subject to Montana individual income tax in the same manner and to the same extent as any other nonresident with Montana source income.

(3) As provided in 1-1-215, MCA, if a person claims a residence within Montana for any purpose, such as obtaining a resident hunting or fishing license, that location is their residence for all purposes, including Montana individual income tax, unless there is a specific statutory exception. The definition of "resident" in 87-2-102, MCA, permits certain nonresident military personnel and their dependents to obtain resident hunting, fishing, and trapping licenses without subjecting them to individual income tax liability as residents.

(4) While the Montana income tax liability of nonresidents is usually determined by calculating the tax as if they were residents then multiplying that calculation by their ratio of Montana source income to total income, the Military Family Tax Relief Act of 2003 requires states to implement special rules when the nonresident is a military serviceperson. If a nonresident serviceperson with Montana source income or their spouse is required to file a Montana individual income tax return, the exempt military income must be excluded from both the numerator and the denominator in determining the ratio of Montana source income to total income.

(5) An example of how the tax liability would be calculated is:

(a) A nonresident serviceperson and their nonresident spouse who are filing a joint return have the following income:

Military compensation $ 40,000
Spouse's - Montana source income $ 30,000
Interest income - Joint $ 500
Dividend income - Joint $ 1,000
Total Income $ 71,500

(b) The exempt military compensation is a subtraction that reduces Montana adjusted gross income:

Gross income: $ 71,500
Less: Exempt military compensation ($ 40,000)
Montana adjusted gross income $ 31,500

(c) The Montana personal and dependent exemptions and either the standard deduction or itemized deductions are subtracted from Montana adjusted gross income to determine Montana taxable income:

Montana adjusted gross income $ 31,500
Less: Deduction and exemptions ($ 17,340)
Taxable income $ 14,160

(d) The tax, determined on the taxable income, is multiplied by the ratio of Montana source income to total income from all sources except the exempt military compensation:

Montana source income $ 30,000

Total income from all sources except military compensation ($30,000 + 500 + 1,000) = $ 31,500

Ratio $30,000/$31,500 = .9523

(e) If the tax determined on the taxable income were $1,000, the taxpayers' Montana tax liability would be $952, the Montana tax liability of $1,000 multiplied by .9523, the ratio of $30,000 to $31,500.

(6) Retroactive to the beginning of calendar year 2009, the Military Spouses Residency Relief Act, Public Law No. 11197 (MSRRA), enacted special rules that affect how Montana and other states tax the wage and other personal service income earned by nonmilitary spouses (for simplicity, the term "wages" will be used to describe all personal services income).

(a) If a military serviceperson and nonmilitary spouse are residents of the same state (the "home state"), when the nonmilitary spouse moves to Montana solely to be with the military spouse who is serving in Montana in compliance with military orders MSRRA allows the nonmilitary spouse to remain a resident of the home state. If that nonmilitary spouse does remain a resident of the home state, only the home state may tax the nonmilitary spouse's wages. Wages earned in Montana that are sourced to the home state are not Montana source income.

(b) Qualified nonmilitary spouses must claim an annual exemption from wage withholding by completing Form MSR Employee Certificate of Status under the Military Spouses Residency Relief Act.

(c) If and when a nonmilitary spouse no longer meets the requirements of MSRRA, their wages are sourced to Montana as provided in 15-30-2101, MCA. The following events disqualify the nonmilitary spouse's wages for special treatment under MSRRA:

(i) the military spouse leaves the military;

(ii) the nonmilitary spouse becomes a resident of Montana;

(iii) the marriage to the military spouse terminates; and

(iv) physical separation due to a duty change when the military spouse's orders move them outside Montana and their spouse is allowed to join them but chooses not to.

History: 15-30-2620, MCA; IMP, 15-30-2101, MCA; Eff. 12/31/72; AMD, 1992 MAR p. 2555, Eff. 11/26/92; AMD, 2004 MAR p. 3147, Eff. 12/17/04; AMD, 2010 MAR p. 1088, Eff. 4/30/10.

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