Peyton, a California resident on active military duty, is transferred to North Carolina. What amount of his income remains taxable in California?

For active military personnel, income tax obligations can differ significantly due to specific regulations governing military members and their residence status. In California, service members' income may be taxable based on their residency status. When Peyton is transferred to North Carolina while still maintaining his military residency in California, the critical aspect is determining which portion of his income, if any, remains taxable in California.

In this case, California law generally allows service members to be taxed on their income earned while stationed in California. However, once they are assigned to a different state, such as North Carolina in Peyton's case, only the income earned while physically present in California remains taxable. This income generally includes any income related to California sources or that has been generated while he was stationed there.

If it is established that Peyton has earned $48,000 total, and only a fraction of that (specifically $4,000) was earned during his time in California before his transfer, then this $4,000 would be the amount subject to California state income tax. Therefore, the correct understanding centers on the military tax rules which provide that only the income accrued while a service member is stationed in California is taxable.