The Foreign Service Journal, February 2013

THE FOREIGN SERVICE JOURNAL | FEBRUARY 2013 45 AFSA NEWS regulations concerning the taxability of Foreign Service pensions and annuities that vary by state. The “State Overviews” (see p. 46) briefly review the laws regarding income tax and tax on annuities and pensions as they affect Foreign Service personnel by state. Please note that while AFSA makes every attempt to provide the most up-to- date information, readers with specific questions should consult a tax expert in the state in question at the addresses given. We also encourage readers to visit the state’s tax Web site (also listed). There are many criteria used in determining which state is a citizen’s domicile. One of the strongest determi- nants is prolonged physical presence, a standard that Foreign Service personnel frequently cannot meet due to overseas service. In such cases, the states will make a determination of the indi- vidual’s income-tax status based on other factors, including where the indi- vidual has family ties, where he or she has been filing resi- dent tax returns, where he or she is registered to vote 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, the domicile might be the state from which the person joined the Service, where his or her home leave address is, or where he or she intends to return upon separation. For purposes of this article, the term “domicile” refers to legal residence; some states also define it as permanent residence. Residence refers to physical presence in the state. Foreign Service per- sonnel must continue to pay taxes to the state of domicile (or to the District of Colum- bia) while residing outside of the state, including during assignments abroad, unless the state of residence does not require it. Members are encour- aged to review the Overseas Briefing Center’s guide to Residence and Domicile, available on AFSA’s Web site at www.afsa.org/Member- Services/MemberGuidance/ ResidenceandDomicile.aspx. A non-resident, according to most states’ definitions, is an individual who earns income sourced within the specific state but does not live there or is living there for only part of the year (usu- ally fewer than six months). Individuals are generally considered 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 six months of the year) but are not domiciled there. Foreign Service employ- ees residing in the metro- politan Washington, D.C., area are required to pay income tax to the District of Columbia, Maryland or Virginia, in addition to pay- ing tax to the state of their domicile. Most states allow a credit, however, so that the taxpayer pays the higher tax rate of the two states, with each state receiving a share. There are currently seven states with no 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, do not tax income earned while the taxpayer is outside the state: California, Con- necticut, Idaho, Minnesota, Missouri, New Jersey, New York, Oregon, Pennsylvania (but see entry for Penn, below) and West Virginia. The requirements for all except California, Idaho, Minnesota and Oregon are that the indi- vidual not have a permanent