New law eliminates state income tax for some active duty Coloradans

U.S. AIR FORCE ACADEMY, Colo. — A law signed by Colorado Gov. John Hickenlooper will allow some active duty Airmen who list their official home of record as Colorado to return Colorado as their legal residency without being obligated to pay state income taxes for their military pay.

The Colorado legislature passed House Bill 15-1181, the “Colorado is Honoring Our Military Exemption (Colorado is HOME) Act and Hickenlooper signed the Bill May 27.

“While the law technically goes into effect August 5, the income tax exemption for military pay does not begin until the 2016 tax year,” said Capt. Josh Tolin, Assistant Staff Judge Advocate at the U.S. Air Force Academy. “Therefore, Colorado residents with military income who meet the requirements of the law must till pay Colorado income tax for 2015.”

The law allows active duty service members to regain their legal residence in Colorado without living in Colorado to take advantage of the income-tax exemption, if they have legal residence in another state.

Colorado residents who join the military are selecting other states of residence to save thousands of dollars in income tax.

To qualify, the active duty Airman must have Colorado listed as the home of record and another state as the current legal residence. In 2016, the Airman only needs to do one of the following to reacquire Colorado residency and qualify for the income-tax exemption: register to vote, purchase property or title register a vehicle in the state, notify the previous state of the intent to make Colorado the legal residence or prepare a will that indicates Colorado is the state of legal residence, Tolin said.

Some military members do change their legal residence to other states that have no income tax or exempt military pay to save money each year. The purpose of this law is to encourage Colorado residents to return as Colorado residents.

“However, service members should be aware that regaining Colorado legal residency removes their ability to register motor vehicles in Colorado without paying ownership tax, as that exemption only applies non-Colorado residents,” Tolin said. “Moreover, the income-tax exemption does not apply to current Colorado residents–only to those who reacquire Colorado residency after January 1.”