The Foreign Service Journal, February 2007

60 F OR E I GN S E R V I C E J OU R N A L / F E B R U A R Y 2 0 0 7 andpensions as they affect ForeignService personnel. Please note that while AFSA makes every attempt to provide the most up-to-date information, readers with spe- cific questions should consult a tax expert in the state in question at the addresses given. Information is also available on the states’ Web sites listed below. Most Foreign Service employees have questions about their liability to pay state income taxes duringperiodswhen they are postedoverseas or assigned toWashington. It is a fundamental rule of law that all U.S. citizensmust have a domicile somewhere. There aremany criteria used indetermin- ingwhich state is a citizen’s domicile. One of the strongest determinants is pro- longed physical presence, a standard that Foreign Service personnel frequently can- not meet, due to overseas service. In such cases, the states will make a determinationof the individual’s income- tax status based on other factors, includ- ing where the individual has family ties, where he or she has been filing resident tax returns,whereheor she is registered tovote or has a driver’s license, where he or she owns property, or where the person has bank accounts or other financial holdings. In the case of Foreign Service employees, thedomicilemight be the state fromwhich the person joined the Service, where his or her home leave address is, or where he or she intends to returnupon separation. For purposes of this article, the termdomicile refers to legal residence; some states also define it aspermanent residence. Residence refers to physical presence in the state. ForeignServicepersonnelmust contin- ue to pay taxes to the state of domicile (or to theDistrict of Columbia)while residing outsideof the state, includingduringassign- ments abroad, unless the state of residence does not require it. Anon-resident, according tomost states’ definitions, is an individual who earns income sourcedwithin the specific statebut does not live there or is living there for only part of the year (usually, less than six months). Individuals are generally consid- ered residents, and are thus fully liable for taxes, if they are domiciled in the state or if they are living in the state (usually at least sixmonths of the year) but are not domi- ciled there. Foreign Service employees residing in the metropolitan Washington area are required to pay income tax to the District ofColumbia,MarylandorVirginia, inaddi- tion topaying tax to the stateof their domi- cile. However, most states allow a credit, so that the taxpayer pays the higher tax rate of the two states, with each state receiving a share. There are currently seven stateswithno state income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. In addition, New Hampshire and Tennessee have no tax on personal income but do tax profits from the sale of bonds and property. There are 10 states that, under certain conditions, donot tax income earnedwhile the taxpayer is outside of the state: California, Connecticut, Idaho,Minnesota, Missouri, New Jersey, NewYork, Oregon, Pennsylvania and West Virginia. The requirements for all except California, Idaho,Minnesota andOregon are that the individual not have a permanent “place of abode” inthe state, haveapermanent “place of abode”outside the state, andnot bephys- ically present for more than 30 days dur- ing the tax year. California allows up to 45 days in the state during a tax year. These 10 states require the filing of non-resident returns for all income earned fromin-state sources. Pennsylvania holds that “quarters pro- videdby the government at no cost topeti- tioner cannot be considered as maintain- ing a permanent place of abode.” Thus members of the ForeignService domiciled in Pennsylvania who occupy government housing overseas must pay income tax to the state. If they rent their ownhomeover- seas, however, they will be exempt from these taxes. AFSA has not heard of a sim- ilar ruling in any of the other nine states, but Foreign Service employees should be aware that states could challenge the sta- tus of government housing in the future. The following list gives a state-by-state overviewof the latest informationavailable on tax liability, with addresses provided to write for further informationor tax forms. Tax rates are providedwhere possible. For further information, please contact AFSA’s LaborManagement Office or the individ- ual state tax authorities. As always, mem- bers are advised todouble-checkwith their state’s tax authorities. To assist you incon- necting with your state tax office, we pro- vide theWeb site addresses for each in the state-by-state guide, and e-mail addresses or linkswhere available. Some states donot offer e-mail customer service. The Federationof TaxAdministratorsWeb site, atwww.taxadmin.org, alsoprovidesmuch useful information on individual state income taxes. James Yorke (yorkej@state.gov) , who compiled the tax guide, would like to thank M. Bruce Hirshorn, Foreign Service tax counsel, for his help in preparing this article. State Overviews ALABAMA: Individuals domiciled in Alabama are considered residents and are subject to taxon their entire income regard- less of their physical presence in the state. Alabama’s tax ranges from 2 to 5 percent inthreebrackets, dependingon incomeand filing status. Write: AlabamaDepartment ofRevenue, 50N. Ripley,Montgomery, AL 36132. Phone: (334) 242-1170. E-mail: Link through the Web site, “About Us” then “Contacts.” Web site: www.ador.state.al.us ALASKA: Alaska does not tax individ- ual income, or intangibleor personal prop- erty. It has no sales and use, franchise or fiduciary tax. Some, but not all, munici- palities levy sales and property taxes. Write: StateOfficeBuilding, 333Willough- by Ave, 11th Floor, P.O. Box 110420, Juneau, AK 99811-0420. Phone: (907) 465-2320. Web site: www.tax.state.ak.us ARIZONA: Individuals domiciled in Arizona are considered residents and are taxedonany income that is included in the federal adjustedgross income, regardless of theirphysicalpresenceinthestate. Arizona’s tax rate ranges from 2.87 to 5.04 percent A F S A N E W S