Kansas state return...any advice?

[Janitor Bob]

Long-time client moved from Ohio to Kansas January 2013. I was pleasantly surprised when I received her tax stuff in the mail this week.....but I have ZERO experience with Kansas and will need to do some research....any advice or words of caution from Kansas members?

I know in Ohio you can have up to 4 returns...Fed, OH, School, and Local...depending on where you live. Does Kansas hava a similar structure?

[jasdlm]

Hi, JB. I live in Kansas. Do you know what County she lives/works in?

Return will be a part-year return, of course. Schedule S is the form you will use to back out the income from the time frame she lived in Ohio.

Is she W2 or Schedule C? Kansas has a new law in 2013 where 'business income', rental income, entity pass-through income, etc. isn't taxable.

Let me know your questions as you run across them. We'll get it worked out. Bart is in Missouri, but I believe he does a large number of Kansas returns, also.

[Janitor Bob]

Her move was January 1, 2013...so no partial year issues....FIRST TIME EVER FOR THIS CONVENIENCE!

The couple lives in Wichita (Sedgwick County, I believe). She has W-2 income from her place of employment and he has W-2 from DFAS (Military).

My point of concern is that he has NO state taxes held out of his Military W-2. This was not an issue when they lived in Ohio because Ohio does not tax military pay for a service-member who is stationed outside of Ohio...he was (and is) stationed in Kansas, so he owed no Ohio tax....but now...it looks like he is going to owe a bunch to Kansas because he lived and was stationed in Kansas for all of 2013....sound right?

[David1980]

Have they actually changed domicile to Kansas, or are they just living there because that's where he's stationed?

[Janitor Bob]

They sold their house in Ohio and purchased one in Kansas...lived in a rental in Kansas from 01/01/13 to 03/01/13, then moved into their new house in Kansas....So I guess that is considered changing their domicile?

[Jack from Ohio]

Their state of residence will be listed on the W-2 in the state area. That is their "State of Record" despite their mailing address.

[Janitor Bob]

Her W-2 says KS....his military W-2 says NJ...although he has never lived or been stationed in NJ ???

[David1980]

http://usacac.army.mil/cac2/Staff/osja/repository/legal_residence.pdf is a good source for information on domiciles for military.

The short version is just buying a house somewhere may not change the state of legal residence (SLR). See methods of changing SLR on page 2. That said, it may very well be that the residence has been changed to KS. Or not. Depends on intent. Whether they plan to stay in Kansas permanently and the such.

[Jack from Ohio]

Her W-2 says KS....his military W-2 says NJ...although he has never lived or been stationed in NJ ???

New Jersey is his domicile state. Where he lives does not change that. If he wishes to change his domicile State, he must do it through the military.

It is also the domicile of his spouse. She gets special treatment due to his domicile state.

Essentially, any state taxes withheld will be refunded because they are non-residents of Kansas based on his Military domicile state choice.

[Janitor Bob]

I don't buy this at all....According to what I read, his domicile/SLR is determined by various factors including where he and his home are physically located, where he is registered to vote, in what state his vehicle is registered, the state on his driver's license, etc....and all of these are KS.

I'm thinking that NJ is on his W-2 because that is his "home of record"....which has no tax relevancy.

I would LOVE for his domicile to be some state other than Kansas...because I do not want to tell this guy that he owes Kansas income tax....but I just don't see any way of not claiming Kansas as his domicile/SLR.

opinions?

[kcjenkins]

http://www.ksrevenue.org/taxnotices/notice09-12.pdf#xml=http://search.ksrevenue.org/texis/search/pdfhi.txt?query=military&pr=KSRevenue&prox=page&rorder=500&rprox=500&rdfreq=500&rwfreq=500&rlead=500&rdepth=0&sufs=0&order=r&cq=&id=53202a3b7b

On November 11, 2009, President Obama signed into law the Military Spouses Residency
Relief Act (S. 475). This act is effective for taxable years that begin on or after January 1, 2009
and all tax years thereafter.

INCOME: Under the new law, the spouse of a military servicemember may be exempt from
Kansas Individual Income Tax for Tax Year 2009 and thereafter on income from services
performed in Kansas if: 1) the servicemember is serving in Kansas in compliance with military
orders, 2) the spouse is residing in Kansas solely to be with the servicemember, and 3) the
servicemember and spouse are not residents of Kansas (the servicemember and spouse are
legal residents of another state of the United States or a foreign country).

Spouses of servicemembers who meet the above requirements and who have had Kansas
withholding on 2009 wages or who have made other Kansas tax payments for Tax Year 2009,
such as estimated tax payments, may receive a refund of these taxes by filing a Kansas
Individual Income Tax return, K-40. The Kansas income tax return can be filed electronically,
using KDOR’s free on-line return – www.kswebfile.org – on or after January 1, 2010. The
spouse’s nonmilitary Kansas income will be subtracted from Federal Adjusted Gross Income.
Only tax payments on 2009 income will be subject to refund. Carry forward of prior years’ tax
payments to Tax Year 2009 are not subject to refund.

The scope of the income subject to refund is limited to “income for services performed by the
spouse of a servicemember” in Kansas. This would include Kansas income from wages, salaries
and business income from “service performed by the spouse”. It would not include, for example,
income derived from Kansas real estate or a trade or business carried on in Kansas that does
constitute “income for services performed by the spouse of a servicemember”.

This law does not exempt any nonmilitary income earned by the servicemember in Tax Year
2009 and thereafter from Kansas income tax. Nonresident servicemember’s military
compensation continues to be exempt from Kansas Individual Income and is also subtracted from
Federal Adjusted Gross Income on line A13 of Schedule S.

WITHHOLDING: The spouse of a military servicemember whose wages/salary is exempt from
Kansas income tax under the above provisions should file a Kansas Form K-4 with their employer
claiming the exemption from Kansas Withholding tax.

Kansas employers should request evidence that the military spouse is indeed a legal resident of
a state other than Kansas. Employers may also want to inquire with military spouses’ state of
residency as to whether the Kansas employer is required to withhold income tax for that state.

Spouses claiming an exemption from Kansas Withholding tax may want to consider the impact
that exemption will have on their income tax liability in their state of residency. They may be
required to make estimated income tax payments to their state of residency in order to avoid
penalties for underpayment of their state’s income tax

[kcjenkins]

The other side of it:

In the United States Military, there is a difference between the terms "Home of Record," and "Legal Residence."

"Home of Record" and "Legal Residence" may, or may not be the same address. One's "Home of Record" is the place one was living when they entered the military (or, re-enlisted in the military, if one chooses). "Home of Record" is used to determine travel entitlements when one separates from the military. It has nothing to do with voting or paying taxes, registering vehicles, nor any of the other priviledges of state residency.

"Home of Record" can only be changed if there is a break in service of more than one day, or to correct an error.

"Legal Residency," or "domicile", on the other hand refers to the place where a military member intends to return to and live after discharge or retirement, and which they consider their "permanent home." Legal residency determines what local (state) tax laws a military member is subject to, and in which local (city, county, state) elections they may vote in.

Because military members may have "legal residence" in one state, but be stationed in a different state, the Servicemembers Civil Relief Act, allows military members to pay taxes, register vehicles, vote, etc., in their "state of legal residence," rather than the state they are stationed in. This can sometimes result in a tax advantage because several states exempt military pay from state taxes.

Does that mean a military member can change their "legal residence" anytime they want, and therefore avoid paying state taxes? Not quite. Under the law, "legal residence" is the place that the military member intends to live after they separate or retire from the military. It's the place that they consider their "permament home." Depending on their service, and local polcies, an active duty military member can change their "legal residence" by visiting their local base legal office and/or base finance office and completing a DD Form 2058, State of Legal Residence Certificate.

However, the military is required by regulation to ensure that military members are not changing their "legal residence" for the sole purpose of obtaining a tax advantage. Therefore, when changing your "legal residence," military officials at the legal office (or finance office) may require some degree of proof that you consider the new state to be your "permament home."

The easist proof is "physical presence in the state." If you are currently stationed in a state, and wish to make it your permament home, it's generally pretty easy. If you are not currently stationed in the state you wish to make your permament home, and have never been stationed there, it become much harder. Generally, you need a specific address, not just the state in general. You can show your intentions to become a legal resident by registering to vote in the new state, by titling and registering your car in the new state (notifying your old state of the change), by getting a driver's license in the new state, or by preparing a new last will and testament (indicating your new state as your legal residence). Buying real property in the new state will also reinforce your claim.

Unless you can show such clear intentions, the military will probably not allow you to change your "legal residence."

Particular care should be taken to ensure your pay records are up-to-date concerning your state of legal residence. If incorrect, you may wind up paying taxes to the wrong state, or paying taxes and penalties in more than one state. If you have any doubt about your state of legal residence, contact your legal assistance office. You may also be required to complete a W-4 form to determine the amount of withholding, or exemption from withholding state taxes.

[Janitor Bob]

but I think both are legal residents of Kansas....so this does not seem to apply. If it did, it sounds like it would help the spouse, but not the military guy who has had zero state tax withheld.

[kcjenkins]

If his "legal residence" was previously set to Ohio, and he wants to keep it, at least for now, he can. He should think about this carefully, now, before you file.

Deduction for military stationed outside Ohio — Military pay earned while on active duty and stationed outside of Ohio is exempt from the Ohio income tax and may be deducted to the extent it is included in federal adjusted gross income. Details on how to take this deduction are found here. http://www.tax.ohio.gov/ohio_individual/individual/military_service_ohio_taxes_deduction.aspx

[Janitor Bob]

That's just it....It will hurt them to claim Kansas as their SLR.....because if they had remained Ohio residents, he would NOT owe Ohio income tax on military income when stationed outside Ohio.....But it looks like they did, indeed change their SLR to Kansas. Since he is stationed in Kansas and appears to have Kansas as his SLR....I think he s going to owe a BUNCH of taxes to Kansas...as no state taxes were withheld from his pay.

[kcjenkins]

Reread my last post. Just because he moved does not mean he changed his SLR, unless he did file the paperwork with the military. And had he done that, they would have started withholding state tax to Kansas.

[Janitor Bob]

Now I find out he's registered to vote in NJ....so maybe NJ really IS his SLR.......Does Kansas have a similar exemption for military pay earned while stationed in Kansas but SLR in another state?

[Jack from Ohio]

New Jersey is his domicile state. Where he lives does not change that. If he wishes to change his domicile State, he must do it through the military.

It is also the domicile of his spouse. She gets special treatment due to his domicile state.

Essentially, any state taxes withheld will be refunded because they are non-residents of Kansas based on his Military domicile state choice.

[Janitor Bob]

Just Reviewed NJ regulations...they are pretty clear on this If you were a resident of NJ prior to joining military (which I'm now told this guy was), he maintains his NJ domicile for tax purposes UNLESS all thee of the below are true:

1) You pay for and maintain a residence in another state............TRUE (KS)

2) You do NOT pay for and maintain a home in NJ....TRUE

3) You did not spend more than 30 days in NJ during the year.....TRUE

....So it looks like I'm back to trying to justify keeping this guy as Ohio for domicile...even though he has absolutely no ties to Ohio...spent no time in Ohio in 2013 and now owns a home in KS

anybody help me justify this or is this guy looking at a HUGE KS income tax bill?

[Jack from Ohio]

I tried. The firm I work for part time is located 20 miles from Wright Patterson AFB. We do more than a few military.

[Janitor Bob]

So despite what I found in New Jersey publication...which clearly indicates that he is NOT a NJ resident/domicile for tax purposes, you would list him as a NJ domicile? I assume I would then need to file a NJ state return for him claiming an exemption for wages earned while stationed outside of NJ?

This seems like all military personnel could just choose a state with no income tax as their "domicile" and never pay state taxes to anyone regardless of where they live or are stationed. If this is the law,,,fine...but it does not sound right.....and I want to take a position that I can successfully defend if the state of Kansas comes knocking on his door.

[jasdlm]

JB - this is from the KS website.

What if I am a Kansas resident in the military?

If your military home of record is Kansas, you are required to file a Kansas income tax return, even if you were not stationed in Kansas last year.

What if I am in the military and stationed in Kansas?

The service pay you or your spouse received as members of the armed forces is taxable only by your state of legal residence. Usually your state of legal residence is the state you lived in at the time of induction into the service.

Kansas income for services performed by a non-military spouse of a nonresident military servicemember is exempt from Kansas income tax. To qualify for this exemption, the spouse must be residing in Kansas solely because the military servicemember is stationed in Kansas under military orders. The exemption from Kansas income tax does not extend to income from Kansas sources earned by the nonresident servicemember. See Notice 09-12

[kcjenkins]

You can not 'just choose a state with no income tax as their "domicile" so as to avoid state taxes. But you CAN, if you choose, keep the state you were resident in WHEN YOU ENLISTED. Clearly, based on his voting registration, that is what he has chosen.

[Janitor Bob]

OMG...thanks jasdlm and Jack....I've been looking at this a certain way and refusing to look outside my own small view/opinion.

They are only living in Kansas because that is where he is stationed.....DUH....they did not just decide on a whim to move there to see Dorothy and Toto. So I guess I would file a Joint KS state return and list his income as not taxable since he is nonresident and get refund of the KS tax that was withheld from spouse's pay

I'm assuming there is a non-resident KS form or section of the KS return to state non-resident.

[Jack from Ohio]

This seems like all military personnel could just choose a state with no income tax as their "domicile" and never pay state taxes to anyone regardless of where they live or are stationed.

Many do just that very thing.