(1) A nonresident member of the United States armed forces who is living in this state solely by reason of compliance with military orders does not become a Montana resident solely by reason of being present in this state in compliance with military orders and their compensation for military service is not Montana source income.

(2) Nonresident military servicepersons and their spouses are, except as provided in (4), subject to Montana individual income tax in the same manner and to the same extent as any other nonresident with Montana source income.

(3) As provided in 1-1-215 , MCA, if a person claims a residence within Montana for any purpose, such as obtaining a resident hunting or fishing license, that location is their residence for all purposes, including Montana individual income tax, unless there is a specific statutory exception. The definition of "resident" in 87-2-102 , MCA, permits certain nonresident military personnel and their dependents to obtain resident hunting, fishing, and trapping licenses without subjecting them to individual income tax liability as residents.

(4) While the Montana income tax liability of nonresidents is usually determined by calculating the tax as if they were residents then multiplying that calculation by their ratio of Montana source income to total income, the Military Family Tax Relief Act of 2003 requires states to implement special rules when the nonresident is a military serviceperson. If a nonresident serviceperson with Montana source income or their spouse is required to file a Montana individual income tax return, the exempt military income must be excluded from both the numerator and the denominator in determining the ratio of Montana source income to total income.

(5) An example of how the tax liability would be calculated is:

(a) A nonresident serviceperson and their nonresident spouse who are filing a joint return have the following income:

(b) The exempt military compensation is a subtraction that reduces Montana adjusted gross income:

(c) The Montana personal and dependent exemptions and either the standard deduction or itemized deductions are subtracted from Montana adjusted gross income to determine Montana taxable income:

(d) The tax, determined on the taxable income, is multiplied by the ratio of Montana source income to total income from all sources except the exempt military compensation:

Montana source income                                                                  $ 30,000

Total income from all sources except

military compensation ($30,000 + 500 + 1,000) =                       $ 31,500

Ratio $30,000/$31,500 =                                                                      .9523

(e) If the tax determined on the taxable income were $1,000, the taxpayers' Montana tax liability would be $952, the Montana tax liability of $1,000 multiplied by .9523, the ratio of $30,000 to $31,500.