Montana Income Tax Exemption for Military Pay and Bonuses

Section 15-30-2120(3)(c) carries four separate military subtractions and the first one has a gate that is easy to miss. Active duty salary. Subsection (3)(c)(i) subtracts salary received from the armed forces by residents of Montana "who are serving on active duty in the regular armed forces and who entered into active duty from Montana". Both halves are required. A Montana resident who enlisted from Idaho and later established Montana residency is serving on active duty as a Montana resident but did not enter active duty from Montana, and on the face of the statute does not have this subtraction. Where a service member entered from is a fact on record and worth checking before filing. National Guard pay. Subsection (3)(c)(ii) subtracts salary received by Montana residents for active duty in the National Guard, and then defines active duty narrowly: duty under an order issued under Title 10, or duty under Title 32 for a homeland defense activity as defined in 32 U.S.C. 901 or a contingency operation as defined in 10 U.S.C. 101, where the member was in a unit engaged in that activity or operation. Ordinary Title 32 drill and annual training are not in the definition. Being in a unit that was engaged is part of the test, not merely holding orders. The state active duty death benefit. Subsection (3)(c)(iii) subtracts the $50,000 payment a beneficiary receives under 10-1-1201 when a Guard member dies in the line of duty on state orders. Montana does not tax its own death benefit. War bonuses, with a refund. Subsection (3)(c)(iv) subtracts all payments made under the World War I bonus law, the Korean bonus law and the veterans' bonus law, and then does something unusual: it declares that any income tax that has been or may be paid on that bonus income is an overpayment, and must be refunded on an amended return and a verified claim. That is a standing refund right rather than a subtraction going forward, and it is one of the few places in this catalog where a statute reopens a closed tax year on its own terms. Montana has no general sales tax, so there is no military exemption to look for there.