Question

An active duty military servicemember's state of legal residence (domicile) is California, but he was stationed outside the state on permanent change of station orders for the entire tax year. His income was: $39,000 military pay, $200 interest (savings account in a California credit union), and $1,000 capital gain on the sale of stock. Which of the following statements is correct?

He must file a California resident return; his taxable income under California law is $39,000.

He must file a California nonresident return; his taxable income under California law is $39,000.

He must file a California resident return; his taxable income under California law is $40,200.

He is considered a nonresident of California and is not required to file a California return. He has no California taxable income.

Answer 1

Ans: He is considered a non resident of California and is not required to file a California return.He has no California taxable income.

Explanation : An active California military members who leave California under permanent change of Station orders become non residents for income tax purposes i.e the active duty military service member whose state of legal residence or who is domiciled in California while stationed outside California on permanent change of station.So based on the above we can say here also, the miltary member has been stationed outside the state on a permanent change of station orders for the entire tax year so he will be considered as non resident of California.

Non Residents are taxed on California sourced income.Non Residents are generally not taxed by California on income from intangibles,such as dividends from stocks or interest from bonds or bank accounts.Also California sourced income does not include military pay unless the miltary service member is domiciled in California and stationed in California.