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State income tax was not deducted from the military paychecks for Guard and Reserve troops, meaning their tax liability may be larger than expected.
"I know this will be an unpleasant surprise for someone who has been on active duty," said Danny Brazell, a Revenue Department spokesman.
The Defense Financial Accounting System only deducts state income tax for military personnel assigned to a permanent duty station, such as Fort Jackson.
Before the long-term mobilizations that followed the terrorist attacks of 2001, Guard and Reserve members seldom worried about paying state income taxes. The part-time pay they receive for monthly drills and two weeks of annual training is exempted by state law.
Guard and Reserve members called to active duty at military and government installations in the United States or overseas, but not in a combat zone, must pay income taxes.
That includes South Carolina guardsmen who guarded al Qaeda and Taliban prisoners at Guantanamo Bay, Cuba.
Income taxes are not collected from troops in combat zones such as Iraq and Afghanistan. At least 2,000 Guard members and reservists from South Carolina have been deployed to the Persian Gulf region.
Lt. Col. Pete Brooks of the South Carolina National Guard said soldiers were told state income taxes would not be deducted prior to their deployments.
A possible remedy is pending in the General Assembly.
The proposed Citizen-Soldier Tax Relief Act would exempt guardsmen and reservists from paying state income taxes when called for federal duty. One of the resolution's sponsors, Sen. Wes Hayes, R-York, said the measure is intended to compensate citizen-soldiers for their service. The resolution, introduced last year, is still in the Finance Committee.
An analysis by the Board of Economic Advisors says the state could lose nearly $6 million in income tax revenues this year if the measure is approved. The state faces a $350 million budget shortfall this year.
"I think it's a small benefit that we can give to people who've been taken out of their daily lives and put into harm's way," said Hayes, a colonel in the National Guard.
Brazell said the Revenue Department will help guardsmen and reservists understand the tax law. Revenue Department staffers have been meeting with troops to explain the tax law. A meeting is planned later this month for about 200 soldiers being mobilized at Fort Stewart, Ga., he said.
The state also is giving military personnel stationed in combat zones more time to file their taxes. Troops will have 180 days to file after they leave a combat zone. The state will waive any interest and penalties that might have been added during that extension.
Information from: The State
