Oregon and Military

[Possi]

Hey Y'all, 

My client has OR as her military Home of Record. She lives/works in VA. Her OR wages are not taxable. 

The issue is that she inherited a "State of Oregon" pension from "Public Employees Retirement System" and I'm not sure how to handle it. 

I'm almost positive that this income IS taxable to OR and that she would file a "resident" return, exempting her military wages only. She would pay taxes on interest, dividends and capital gains income as well, if this is correct.

Can anyone confirm or correct this for me? 

I plan to call them when they open, but thought I'd ask here just in case we have someone who knows. 

donna

[DANRVAN]

2 hours ago, Possi said:

My client has OR as her military Home of Record. She lives/works in VA. 

I'm almost positive that this income IS taxable to OR and that she would file a "resident" return

She would NOT be an Oregon resident if she meets the following per ORS 316.027:

"• You don’t maintain a permanent residence in Oregon for yourself or your family during any part of the year, and

• You maintain a permanent residence outside Oregon during the entire year, and

• You spend less than 31 days of the year in Oregon."

2 hours ago, Possi said:

She would pay taxes on interest, dividends and capital gains income as well, if this is correct.

If she is a nonresident, those items are not taxable as Oregon source income unless they were attributable to:

(a) The ownership or disposition of any interest in real or tangible personal property in Oregon;

(b) A business, trade, profession or occupation carried on in Oregon.

Also as a nonresident the inherited retirement income is not taxed by Oregon.

See ORS 136.127 for details.

[Possi]

1 hour ago, DANRVAN said:

She would NOT be an Oregon resident if she meets the following per ORS 316.027:

"• You don’t maintain a permanent residence in Oregon for yourself or your family during any part of the year, and

• You maintain a permanent residence outside Oregon during the entire year, and

• You spend less than 31 days of the year in Oregon."

If she is a nonresident, those items are not taxable as Oregon source income unless they were attributable to:

(a) The ownership or disposition of any interest in real or tangible personal property in Oregon;

(b) A business, trade, profession or occupation carried on in Oregon.

Also as a nonresident the inherited retirement income is not taxed by Oregon.

See ORS 136.127 for details.

This isn't your typical tax client. Military are treated differently. Since her home of record is OR, her wages are not taxed to OR or to any other state where she resides. You did hit on something, though. I think her pension will be taxable to VA since she lives here, as a "non-resident" because the military curtsey only applies to wages. 

The OR practitioner line didn't know the answer, but an auditor will call me back. With your help, I think we have solved this one. Thank you!

[DANRVAN]

37 minutes ago, Possi said:

Military are treated differently.

In regards to residency, they are basically treated the same.  From Oregon Pub 17 page 20,

A. Special-case nonresident. You are treated as a “special-case” nonresident of Oregon if you are stationed outside of Oregon and all three of the following are true:

1. You didn’t have a permanent residence in Oregon for yourself or your family during any part of the tax year, and

2. Your permanent residence was outside Oregon during the entire tax year, and

3. You spent less than 31 days in Oregon during the tax year.

And if that does not apply there is another exception:

B. DFAS address outside of Oregon. You are treated as a nonresident of Oregon, no matter where you are stationed, if both of the following are true:

1. You are performing “active service,” as defined in 10 United States Code (U.S.C.) Section 101(d) (3), other than annual training duty or inactive duty training, and

2. You are a resident of another state according to DFAS payroll records.

 

37 minutes ago, Possi said:

I think her pension will be taxable to VA since she lives here, as a "non-resident" because the military curtsey only applies to wages. 

I question that.  If she was from VA and stationed in Oregon, the VA based pension would not be an Oregon income source.

I don't know about VA, but I think the concept of state sourced income is universal. 

[Possi]

20 minutes ago, DANRVAN said:

In regards to residency, they are basically treated the same.  From Oregon Pub 17 page 20,

 

And if that does not apply there is another exception:

2. You are a resident of another state according to DFAS payroll records.

 

I question that.  If she was from VA and stationed in Oregon, the VA based pension would not be an Oregon income source.

I don't know about VA, but I think the concept of state sourced income is universal. 

"The other exception under #2"; she is not a resident of another state according to DFAS payroll records. She is a resident of OR according to DFAS payroll.

Maybe VA won't tax the pension, and OR might not tax it, either. I was a little confused about VA because I was thinking of another situation. I was thinking of a FL home of record service member (living in VA) whose new wife gets a pension from ex husband, and has wages. Her wages are not taxable to VA because she hopped on the FL state with her husband, but all other income is taxable to VA.

This is different because it is actually the service member herself who received the pension. Since her home of record (which is the state according to DFAS payroll records) is OR, it will all go to OR. Wages won't be taxable, so all I need to know is whether or not the pension will be. 

Regarding VA, if a service member's Home of Record is VA, then VA would tax the pension, no matter if it came right from Heaven. VA gives no breaks. 

[DANRVAN]

6 minutes ago, Possi said:

so all I need to know is whether or not the pension will be. 

Does she pass this test?

1. You didn’t have a permanent residence in Oregon for yourself or your family during any part of the tax year, and

2. Your permanent residence was outside Oregon during the entire tax year, and

3. You spent less than 31 days in Oregon during the tax year.

[Possi]

Yes, so that makes her a "special case non-resident." 

Following that, would the pension be exempt along with the wages?

[DANRVAN]

3 minutes ago, Possi said:

would the pension be exempt along with the wages?

Yes, since she is considered a nonresident and the income is considered non-source to Oregon per ORS 136.127.

If she moves back to Oregon, it become taxable to her as a resident.

[Possi]

Oh my gosh, thank you so much! 

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