State income tax and where you establish residency

Your legal residence while you serve

This is the most valuable fact on the page, and the original list did not mention it.

Under 50 U.S.C. 4001(a)(1), military orders neither take away nor hand you a state of legal residence — they freeze the one you already have. The law's words: a service member “shall neither lose nor acquire a residence or domicile for purposes of taxation … by reason of being absent or present in any tax jurisdiction of the United States solely in compliance with military orders.” Under 4001(b), your military pay is not taxable by a state you are not a resident of.

So you keep your home state's domicile no matter where you are stationed. Changing your legal residence to a state with no income tax is possible — but it takes actually establishing domicile there. That means physical presence plus intent, normally shown by being stationed in that state and taking the ordinary steps: driver license, vehicle registration, voter registration, property.

The spouse has the same protection — and an election

For a two-income Family this is real money, and it is routinely missed.

• 50 U.S.C. 4001(a)(2) protects a military spouse's domicile the same way it protects the service member's.
• A spouse's wages earned at the duty station are not taxable there when the spouse is present solely because of the member's orders.
• 50 U.S.C. 4001(a)(3) lets the service member and spouse jointly elect to use, for tax purposes, the member's residence, the spouse's residence, or the member's permanent duty station.

For a retiree, the rate may be the wrong number entirely

What matters is whether that state taxes your retired pay.

A state with a higher headline rate that exempts military retired pay can leave you with more money than a lower-rate state that taxes it in full. That one fact can reorder any “lowest tax states” list you will ever see.

I do not print a state's treatment of military retired pay unless I have it from that state's own department of revenue, and I do not have it for the states in my table. So here is the move instead.

States with no individual income tax

Alaska · Florida · Nevada · New Hampshire · South Dakota · Tennessee · Texas · Washington · Wyoming

A state with no income tax still has to fund itself

Seven of those nine get the money back another way.

Sales tax, property tax, excise tax, severance tax — the bill arrives, it just arrives with a different name on it. A veteran who relocates on the headline income tax rate alone can end up paying more, not less.

Flat, graduated, and the taxes underneath

Two states can print the same number and charge you completely different money.

• A flat rate hits every taxable dollar you have.
• A graduated rate is a set of bands. The number you usually see quoted is the top band, which most people never reach.
• North Dakota's 2.50% only applies above roughly $245,000 of single income. On a normal salary a North Dakotan pays 0% on the first band and 1.95% above it — less than an Arizona resident paying 2.5% on every dollar. Ranked in one column, those two look backwards.
• Local income taxes are on top. Indiana counties, Ohio cities and school districts, Pennsylvania municipalities and school districts, and Michigan cities all levy their own. The state figure is not what you pay.