What is State of Legal Residence?
In the context of legal documents, the term ‘state of legal residence’ refers to the state in which an individual considers their permanent home to be located. On a technical level, it is where an individual either lives or has established business ties. It can also refer to the state in which that person is registered to vote . The ‘state of legal residence’ on legal documents serves as a means for the DMV or other parties involved to identify that person in matters of law. It can help with asset allocation in terms of partition and division of property, estate administration, and in aspects of commercial law, particularly when travel or relocation is involved. This is because many legal and financial parameters are listed according to state law, which can differ across state lines.
How is State of Legal Residence Established?
Determining an individual’s state of legal residence is a two-step process involving: 1) Duration of stay (i.e., how long does the person stay outside the U.S.); and 2) a determination of their domicile – what is their permanent home. Generally, the purpose of the state of legal residence determination is to ascertain, for federal tax purposes, if a person is subject to U.S. tax based on residence.
An individual’s tax state of legal residence for an employee performing services in two or more states, or nonresident alien on an appropriate visa, is the state whose laws control. Regulation Section 31.3121-4(b)(2)(ii) defines state of legal residence as:
[T]he state within which an employee has established a permanent home under such circumstances that he can show whether he or not he intends to establish a permanent home in another state. In determining an individual’s state of legal residence, the Employee must consider all pertinent facts bearing on intention. Among other things, the Employee may take into account the place of voting registration, the Address Printed on the Individual’s Driver’s License or Postal Box, and the property claimed as a residence for tax purposes.
The IRS in PLR 20060340 acknowledged that state tax laws varies on the definition of a resident and, in addition to the state of domicile, there may be more than one state with legal residence. Consequently, state tax law determines the method that an individual must use for apportioning income from services performed in more than one state.
Impact of State of Legal Residence
The state of legal residence can have significant implications beyond those of domicile for the military member and their family members. For example, while seeking care at an MTF or Appt Dept (an MTF or installation hospital/clinic), having a state of legal residence that is a state that has given the DoD ADFMTR program an opt-out will result in your getting billed for TRICARE Prime services. Even if you get TRICARE Prime and you are an AD member, if you then move from one state that has opted out to another state that has not opted out of the DoD ADFMTR program, you will no longer be able to get care at the native MTF/Appt Dept without the approval of the local MTF Commander.
Of course, you may care more about being able to vote in state elections than you do about obtaining care at the native MTF/Appt Dept. Your ability to register to vote is based upon your state of legal residence, which may be different from your domicile. Your domicile is somewhat closer to where you are "from" because it’s usually the location of your driver’s license, insurance, passport application (where you check the "yes" or "no" box indicating that you reside in that state), and other personal matters. Your state of legal residence may be the state in which you intend to live when you retire. In other words, it’s your intended future domicile, or planned home of record. This may be important to you if you intend to vote in state elections where you were previously registered but no longer reside.
State laws deal with the matter of income tax liability—where you do or don’t have to pay them—for military members and their families differently. Some states are tax havens for military members and their families. Others are not. Generally speaking, your tax liability to your state of legal residence and/or domicile will be determined according to the laws of that state, for that state’s residents. In addition to having no income tax liability, some states have state sales taxes that are comparatively lower than others, or don’t have estate taxes or certain other taxes that others do. This can work to your financial advantage or disadvantage, depending upon the tactical moves that your family makes.
Voting, income taxes, and MTF/Appt Dept issues are just a few examples of how your state of legal residence may matter, so it’s something that you should pay some attention to, particularly as you approach the end of your military career.
Changing Your State of Legal Residence
Pursuant to the SCRA, changing your state of legal residence is a relatively common thing for service members. Just like establishing your state of legal residence, changing your state of legal residence requires you to jump through some legal hoops, though. There are legal documents you must both execute and file, and the change can have significant impacts on your taxes, particularly state taxes. Your state of legal residence (and any change of that residence) also can impact your benefits, and so it is important that you consult with an experienced JAG or military attorney about the chain of events required to rectify these issues.
To change your state of legal residence, the process is very similar to the process of establishing your state of legal residence in the first place. First, you must sign a declaration under penalty of perjury to establish an intent to maintain that residence for good. You must sign that declaration at the appropriate time and place, however. Either when you are entering the military or a year after entry is the appropriate time. If you enter into the military and do not sign the declaration within a year, that fact will prevent you from establishing residence in a state in which you were temporarily stationed. The appropriate time and place for the signing of the declaration is either in front of your military commanding officer or in front of a federal magistrate or federal district judge. The declaration form itself is called a Standard Form 886. It must be executed by you , and filed like any other legal document with your appropriate military pay center.
There are numerous challenges and pitfalls in the process of changing your state of legal residence. For example, once you submit your declaration, your chain of command cannot modify the declaration. Your commanding officer does not have the power to confer a legal residence upon you. In addition, your chain of command is not responsible for reviewing your declaration and making sure that you meet each requirement. You must be sufficiently diligent in reviewing your qualification for the legal residence before you submit the declaration. Particularly in the case of a name change, you will need to get a new social security card and number before you submit the declaration, as your social security number is one of the few things that can change and alter your legal residence. Failure to do so will result in the denial of your declaration.
It is also important to remember that there are some individuals who cannot successfully establish residence through the SCRA. For example, if you are a foreign service employee, you are not entitled to any benefits under the SCRA. Likewise, if you entered into the military from a territory of the United States or from a foreign country, you cannot establish your state of legal residence through the SCRA. However, even though the SCRA may permit you to change your state of legal residence, it is not without limits. It will not help you if you are getting divorced or separated.
Common Questions
The term "state of legal residence" can cause confusion or uncertainty, especially when coupled with a change in residence. State of legal residence is probably the most complex and misunderstood military legal term.
We thought it would be appropriate to discuss common misconceptions and clarify the rules regarding state of legal residence. The Soldiers’ and Sailors’ Civil Relief Act (SSCRA) 50 U.S.C. App. § 524.
Myth #1 – State of legal residence is where I live.
Fact – While this is sometimes true, it is not always the case. Generally, if active duty personnel move they may not lose or change their state of legal residence until they take action to make a new state their state of legal residence (i.e. they do nothing and that becomes the state of legal residence). On the other hand, if a retired service member moves from the state that was their state of legal residence, or if they move back to the state of legal residence they moved from, it is the last time they made an affirmative action to establish a new state of legal residence when they actively established a new one. It is very important to make sure you do what needs to be done to establish domicile in a new state. If you do not do so, your retirement benefits could be affected in ways you never expected. If you do not have a new state of legal residence, then you are presumed to maintain the legal state of residence in which you entered the service. The onus is on the retiree who moves to a new state to effectively change their state of legal residence. The rules for changing state of legal residence are significantly different for retirees than for active duty personnel. Retired military personnel must take affirmative action to change their state of legal residence. They must send in their DD2268 and take steps to affirmatively take one or more of the following actions: Any of these actions taken by a retiree serves as sufficient action for the purposes of establishing a new state of legal residence. It is imperative that retired military personnel move and take action in accordance with the law if they want to change their state of legal residence upon relocation. Every service member is responsible for his/her own entitlements. If you do not act in accordance with the law, you risk losing any retirement entitlements that might exist for you based on your geographical location. However, for active duty personnel, there are no affirmative actions that must be taken for an active duty person to change their state of legal residence when they change states. Because they are called to active duty in the state in which they reside, they must decide whether they want to change their current state of legal residence to the new state. Most active duty personnel should be able to keep their state of legal residence without taking any further action. If active duty personnel wish to change their state of residence, they need only send in a form that establishes their intent to change their legal residence to the appropriate office. This may include their command, the Defense Finance and Accounting Services, the military services tax advisors, the legal office, or any other office in which the member’s personal information is recorded. Most active duty personnel must also provide a copy of their orders to the office. It is the member’s responsibility to change his or her state of legal residence.
State of Legal Residence for Servicemembers
One special consideration regarding state of legal residence determination is that tax rules applicable to members of the armed forces are different from those applicable to civilians. As provided by another provision of the Code, active duty military members (and their spouses) may treat as their state of residence, any state in which they are present as a result of military duty. If it can be determined that an individual meets the requirements of a state income tax domicile, then that person will not lose that domicile because of military service. In other words , an active duty member of the armed forces will not be deemed to lose their domicile if they are stationed outside of the domicile state as a result of military orders. Similar special considerations apply to military members for estate taxes and gift taxes. The domicile of a decedent will not be deemed to change solely because the decedent is present in a foreign country as a result of military duty. The domicile of a surviving spouse will not be deemed to have changed simply because he or she is present in a foreign country as a result of military duty of the taxpayer or of a spouse.