You can simplify the process and keep some cash in your savings account by following a few key provisions. By Kevin McCormally, Chief Content Officer February 17, 2012 Federal tax law has some sweet (and well-deserved) breaks for military families. And, here are key provisions that can simplify things—and maybe save money—when it comes to state income taxes, too. Generally, your legal residence for determining where you vote, get your driver's license and pay your taxes is the state where you live. But the law allows servicemembers to maintain legal residence in one state even if they are stationed in another. Imagine the hassle if you had to change all those things every time you were transferred. That's the simplicity part.SEE OUR COMPLETE GUIDE: Personal Finance Tips for Military Families The savings part is that if your legal residence (also called domicile) is—or is changed to—a state that has no income tax, you can be shielded from the state levy even if you find yourself living in a high-tax state. A Pilot's Story Advertisement Lt. Eric Schwab, a 28-year-old Navy pilot, is now stationed in Kingsville, Tex., after a two-year deployment with the USS Enterprise. A native of Rhode Island, that’s where Schwab has filed state income taxes since he was commissioned in 2005, despite a training stint in Florida and several years being stationed in Virginia. "Since taxes in Virginia were higher than in Rhode Island, I didn't want to change my domicile while I was there," says Schwab. When in Florida, Schwab wasn't aware that he could change his legal residence to that no-tax state. But now that he's in Texas (also a no-income-tax state), the lieutenant will claim the Lone Star State as his domicile. So, even if he's transferred to a state that imposes an income tax, his military pay will be tax-free at the state level. How to Do It You can't just wish away state taxes by claiming a no-tax state as your home. "Domicile is a term of art meaning physical presence plus the intent to remain there permanently or to return there," explains Lt. Col. Evan Stone, director of the Armed Forces Tax Council. Advertisement Your domicile begins as your home state when you join the military and can remain the same, regardless of where you are actually deployed. Or, if you are transferred to another state—so you meet the physical presence test that Stone cited—and decide to make it your home, you can establish it as your legal residence. You can’t do this just for tax purposes. You'll want to register to vote in the state, register your car and get your driver's license there, and plan to return once your service is completed. Although your military pay will be taxed (or not) by your domicile state, other earned income (from a second job, for example) can be taxed by the state where you are stationed. Check the rules carefully wherever you are stationed. A Break for Spouses In recent years, the law has been expanded to provide state-tax relief for husbands and wives. Now, a spouse who has the same domicile as a servicemember can also maintain that legal residency if the couple moves to a new state under military orders. His or her civilian pay will be taxed by the rules of the domicile, not the state where they actually live. Advertisement That rule will be a big help to Lt. Schwab, who will soon be married to Megan Gorzynski. Once they establish Texas as their legal residence, they'll both enjoy the benefits of a no-income-tax state no matter where he is stationed throughout his service. If you have questions about establishing your domicile, check with the legal-assistance office on your base, ship or installation.