Does Maryland's tax break for military pay earned outside the U.S. only apply to service members permanently stationed overseas?

Plain-English summary

The Comptroller's Income Tax Division asked the Attorney General to clarify a 1989 state tax break: Tax-General Article §10-207(q) lets a Maryland resident subtract up to $15,000 of military pay attributable to service "outside the United States" from income, phasing the subtraction out entirely once total military pay exceeds $30,000. The Comptroller wanted to know whether this only covers troops permanently stationed abroad, or also covers, say, a service member based in the United States who performs duty outside the country, such as time spent aboard a ship at sea.

The Attorney General concluded the exemption is not limited to permanently overseas-stationed troops. Starting from the statute's plain text, which conditions the subtraction only on the pay being attributable to service outside the United States and a dollar cap, with no separate requirement about where the taxpayer is stationed, the opinion found nothing limiting it further. Digging into the legislative history, the opinion found evidence cutting the other way from what a narrower reading might assume: a veterans' group's suggestion to add a 30-day minimum for qualifying overseas service would have made no sense if the law already required permanent overseas stationing, and the bill's own sponsor had, in an earlier unsuccessful 1984 version of similar legislation, used language expressly limited to "permanent overseas duty status," language conspicuously dropped from the 1989 law that actually passed. Because nothing in the final statute or its history clearly limited the break to permanently stationed troops, the opinion concluded any military service performed outside the United States qualifies.

Common questions

Does a service member have to be permanently stationed overseas to get this Maryland tax break?
No, according to this opinion. The exemption applies to military pay attributable to any service performed outside the United States, even if the service member's actual duty station is inside the country, such as a sailor who spends time at sea on a ship based in the U.S.

How much of a service member's pay can be subtracted?
Up to $15,000 of military pay attributable to overseas service, but the subtraction shrinks dollar for dollar once total military pay exceeds $15,000, and phases out completely once total military pay exceeds $30,000.

Why didn't the Attorney General read this as limited to permanently overseas troops, given the legislative history focused on them?
Because the opinion found the focus in committee materials was likely just a byproduct of the state having reliable data on Marylanders permanently stationed abroad, not evidence of an intent to limit the law that way. More tellingly, the bill's own sponsor had used explicit "permanent overseas duty status" language in a failed 1984 predecessor bill and dropped that limiting language from the 1989 law that passed.

Can the Comptroller set rules for how service members calculate this subtraction?
Yes. The opinion noted the Comptroller may adopt reasonable regulations to administer the military pay subtraction, and that a taxpayer's reasonable calculation of the subtraction should be accepted.

Background and statutory framework

Chapter 637 (House Bill 65) of the Laws of Maryland 1989 added subsection (q) to Tax-General Article §10-207, creating a state income tax subtraction of up to $15,000 for military pay attributable to service outside the United States, phased out entirely once a taxpayer's total military pay exceeds $30,000. Applying the rule that statutory construction begins with the statute's own language (Morris v. Prince George's County), the opinion found the text imposes only a dollar-amount limit, with no separate geographic-stationing requirement.

The opinion then tested that plain reading against the legislative history and found it consistent, even reinforcing. A veterans' advocacy group had proposed adding a 30-day minimum period of qualifying overseas service (adopted in a different, dollar-cap form rather than as a duration requirement), a suggestion that would have been superfluous if the bill already limited the benefit to permanently overseas-stationed troops. And the bill's sponsor, Delegate Clarence Davis, had introduced an earlier 1984 bill on similar terms that was expressly limited to members with "a permanent overseas duty status," language he did not carry over into the 1989 law that ultimately passed. Reading the dropped limiting language as significant, and finding no contrary evidence of legislative intent to narrow the exemption, the opinion concluded the subtraction reaches any military service performed outside the United States, regardless of the service member's permanent duty station, while leaving the Comptroller free to adopt reasonable administrative regulations under TG §§2-102 and 2-103.

Citations and references

Statutes:

• §10-207(q) of the Tax-General Article (military pay subtraction for service outside the United States)
• Chapter 637 (House Bill 65), Laws of Maryland 1989 (enacting statute)

Cases:

• Morris v. Prince George's County, 319 Md. 597 (1990) (statutory construction begins with the statute's own language)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1990/Volume75_1990.pdf (this opinion appears at printed pages 454-456 of the bound annual volume; Maryland's site does not publish a standalone PDF of this opinion)

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

Taxation -- Income Tax -- Applicability of Exemption for Military Service "Outside the United States"

October 15, 1990

David C. Brown, Assistant Director
Income Tax Division
Comptroller of the Treasury

You have requested our opinion concerning an income tax exemption for military pay that is attributable to service "outside the United States." You have asked whether the taxpayer must actually be stationed outside the United States to qualify for this exemption or whether the exemption is also available to a taxpayer stationed in the United States who performs services outside it (for example, on board a ship).

For the reasons stated below, we conclude that the exemption applies to compensation for any military service performed outside the United States, regardless of the site of the taxpayer's duty station; the exemption is not limited to military service performed while the taxpayer is stationed outside the country.

I

Exemption

In 1989 the General Assembly amended §10-207 of the Tax-General Article ("TG" Article), which provides for various subtractions from the federal adjusted gross income of a Maryland resident to determine adjusted gross income for State tax purposes. This new subtraction, as enacted in Chapter 637 (House Bill 65) of the Laws of Maryland 1989, provides as follows:

    (1) The subtraction under subsection (a) of this section includes the first $15,000 of military pay that is:

    (i) received by an individual who is in active service of any branch of the armed forces; and

    (ii) attributable to military service of the individual outside the United States.

    (2) The amount of the subtraction under paragraph (1) of this subsection:

    (i) is reduced dollar for dollar in the amount by which military pay received by the individual exceeds $15,000; and

    (ii) is reduced to zero if the amount of military pay received by the individual exceeds $30,000.

TG §10-207(q). Your question is whether this subtraction is available only to those Maryland residents who are stationed outside the United States as members of the armed forces.

II

Analysis

"[T]he beginning point of statutory construction is the language of the statute itself." Morris v. Prince George's County, 319 Md. 597, 603, 573 A.2d 1346 (1990). On its face, the subtraction in TG §10-207(q) applies to military pay for any military service outside the United States. The only limitation is a dollar amount. The statute makes no reference to a further limitation in terms of the taxpayer's being stationed outside the United States.

It is quite true that the legislative history, as documented in the committee files, is largely focused on the plight of members of the armed services who are stationed outside the United States. For example, the fiscal note analyzed the bill in terms of "military personnel who were legal residents of Maryland and were stationed outside the United States." However, this focus may have resulted simply from the fact that exact data was available on the number of Marylanders who are stationed outside the United States as members of the armed forces.

The legislative history also reveals that at least the Senate committee considering the legislation was made aware that the bill was not limited to taxpayers permanently stationed outside the United States. This construction of the bill is implicit in a suggestion that the subtraction be limited to military service outside the United States of at least 30 days, unless the taxpayer was injured in the line of duty. See statement of March 23, 1989 from Montgomery County Chapter, Maryland Retired Officers Association to Senate Budget and Taxation Committee. The suggested durational minimum would have made little sense if the bill already conditioned the benefit on the taxpayer's being stationed overseas. Although another suggestion by the Association to cap the subtraction was adopted, this limitation was not. See 1989 Senate Journal at 2759-2761.

Moreover, there is evidence that the chief sponsor, Delegate Clarence Davis, chose to frame a bill that went beyond taxpayers stationed outside the United States. In 1984, Delegate Davis introduced a similar bill, House Bill 1062, which was expressly limited to members of the armed forces "with a permanent overseas duty status." In the absence of such an express limitation in the 1989 law or of any clear legislative intention to limit the application of the law to those stationed outside the United States, it is our view that the application of the law should not be limited in this manner.

So long as the subtraction is calculated in a reasonable manner by the taxpayer, this calculation should be accepted by the Comptroller's Office. The Comptroller may, of course, adopt reasonable regulations to administer the subtraction for military pay. See TG §§2-102 and 2-103.

III

Conclusion

In summary, it is our opinion that the exemption under the State income tax law for a part of military pay attributable to service outside the United States is not limited to Maryland residents who are stationed outside the country.

                                          J. Joseph Curran, Jr.
                                          Attorney General

                                          Richard E. Israel
                                          Assistant Attorney General

Jack Schwartz
Chief Counsel
Opinions & Advice