Taxman’s surprise for some troops

Some S.C. National Guard and Reserve soldiers could be in for a surprise at tax time.

Those who were called up for active duty in 2003 will discover state income tax was not deducted from their military paychecks. That means the troops could owe the state treasury some big money once their tax forms are completed.

“I know this will be an unpleasant surprise for someone who has been on active duty,” said Danny Brazell, spokesman for the state Department of Revenue.

The problem stems from how troops were paid, officials said.

All checks for military personnel — whether on active duty or serving part-time in the Guard and Reserve — are cut by the Defense Financial Accounting System. The Defense Department agency only deducts state income tax for military personnel assigned to a permanent duty station, such as Fort Jackson.

But after 9/11, the Pentagon called up thousands of guardsmen and reservists, including 7,200 from South Carolina, for full-time service for months at a time.

Before those long-term mobilizations, Guard and Reserve members seldom worried about paying state income taxes. That’s because the part-time pay they received for attending monthly drills and two weeks of annual training is exempted by state law from the S.C. income tax.

But Guard and Reserve members called up to active duty to serve at military and government installations in the United States or overseas — but not in a combat zone — must pay income taxes. That includes S.C. 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 S.C. National Guard said soldiers were told state income taxes would not be deducted prior to their deployments.

They also were advised of a couple of strategies to pay the tax, he said. One suggestion was to estimate state income tax and pay quarterly. The other was to increase federal withholding tax and use the refund from the U.S. government to pay the state, Brooks said.

A possible remedy is pending in the state Legislature.

A joint resolution called the “Citizen-Soldier Tax Relief Act” would exempt guardsmen and reservists from paying state income taxes when called up for federal duty.

One of the resolution’s sponsors, state Sen. Wes Hayes, R-York, said the measure is intended to compensate citizen-soldiers for their service.

“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.

Gov. Mark Sanford, a captain in the Air Force Reserve, is interested in the measure, said press secretary Will Folks. “It’s certainly something that the governor is open to looking at it.”

Folks added that the governor thinks the measure underscores the need to eliminate the state income tax as a way to stimulate the economy, create jobs and spur investment.

Introduced in 2003, Hayes’ bill has yet to get out of the Senate Finance Committee.

One reason for the delay could be the cost. According to an analysis by the state Board of Economic Advisors, the state could lose up to $5.9 million in income tax revenues this year. At the same time, the state is facing a $350 million budget shortfall.

About a dozen other states, from New York to Arizona, either have enacted similar measures or are considering them, said a spokesman for the National Guard Bureau. In some states, including Florida and Texas, income tax is not an issue because there is no income tax, he added.

The Revenue Department’s Brazell, a Desert Storm veteran and retired National Guard sergeant first class, said the state will do more to help guardsmen and reservists understand the tax law.

For example, Revenue Department staffers have been meeting with troops to explain the tax law. A meeting is planned for later this month for about 200 soldiers who are 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.

In addition, the state will waive any interest and penalties that might have been added during that extension.

For the troops who cannot pay their tax bill on time, Brazell said his agency will work with them.

“They can certainly come in and talk to us,” Brazell said. “We’ll look into ways so that they can pay it off as painlessly as possible.”

Reach Crumbo at (803) 771-8503 or ccrumbo@thestate.com.