Does North Dakota's military pay tax exemption cover National Guard Active Guard Reserve, dual-status technicians, and ADOS service?

Plain-English summary

In 2023, the North Dakota Legislature expanded the state income tax exemption for military pay. Senate Bill 2293 codified the new definition at N.D.C.C. § 57-38-30.3(2)(g), which says taxable income is reduced by "the amount of military pay received by a taxpayer as a member of the armed forces of the United States." The statute then explains that "military pay" "includes all federal pay for training, education, mobilization, and bonuses and state pay when called to support an emergency on State active duty."

The North Dakota National Guard's deputy adjutant general asked whether four specific duty statuses fall within the exemption: Active Guard Reserve (AGR, a Title 32 full-time National Guard duty), Dual-Status Technician (DST, a federal civilian role tied to military membership), Dual-Status State Employee (DSSE, the state-funded equivalent), and Active Duty for Operational Support (ADOS, a Title 32 full-time National Guard role). None of those statuses are obviously "training, education, mobilization, or bonuses," so the question is whether the listed examples are exhaustive.

The AG concluded they are not. Under N.D.C.C. § 1-02-02 and a long line of North Dakota Supreme Court decisions, "includes" in a statutory definition is "a word of enlargement and not a term of limitation." The Legislative Drafting Manual confirms that "includes" means "includes, but is not limited to." So the listed types are illustrative, not exhaustive. Read in full, the exemption covers any otherwise-taxable income received by a member of the U.S. armed forces for work related to military duties. AGR, DST, DSSE, and ADOS pay all qualify.

What this means for you

If you're a Guard or reserve member in one of these statuses

You can exclude that pay from your North Dakota taxable income for tax years governed by the 2023 amendment. If you've already filed a return that didn't take the exemption, you may want to file an amended return, but check with the North Dakota Tax Commissioner's Office or a tax professional first, since deadlines and procedures for amended returns matter.

If you're a unit finance officer or military payroll office

The opinion clarifies that the exemption is broader than the literal list in the statute. Your members in any AGR, DST, DSSE, or ADOS status get the same federal tax exemption as Title 10 active duty, plus this North Dakota state exemption. Update your W-2 guidance and your members' tax-prep counseling accordingly.

If you prepare returns for military clients

The opinion is dated March 14, 2024, and is binding on state officials until a court rules otherwise. Use it as authority on the return. The list of qualifying duty statuses now plainly includes AGR, DST, DSSE, and ADOS, and the AG's reasoning suggests other Guard and reserve duty statuses tied to military membership and uniform also qualify.

Common questions

Q: Does this opinion cover prior tax years?
A: The opinion interprets the 2023 statutory amendment, so it speaks to tax years governed by that amendment. For earlier years, the prior, narrower version of the statute applied.

Q: What about state active duty (SAD) pay?
A: SAD pay called to support an emergency or disaster is explicitly named in the statute as exempt. Other SAD pay falls under the same "includes is non-exhaustive" reasoning the AG used for AGR/DST/DSSE/ADOS, but the opinion's express conclusion only lists those four statuses.

Q: What's the difference between a DST and a DSSE?
A: A DST is a federal civilian employee whose civilian job is tied to maintaining military membership. A DSSE is functionally the same role, but the salary comes through the state and gets reimbursed by the federal government under cooperative agreements. Both lose their civilian job if they lose military membership.

Q: Is this exemption automatic on my paycheck?
A: No. North Dakota state income tax exemptions usually run through the return, not through withholding. You claim the deduction when you file. Talk to your tax preparer or the Tax Commissioner about how to ensure your withholding doesn't overshoot.

Background and statutory framework

The reduction is in N.D.C.C. § 57-38-30.3(2)(g), which adjusts federal taxable income downward by the amount of qualifying military pay. The 2023 SB 2293 expansion broadened the definition. The opinion's analytical work is in the construction of the word "includes": it relies on N.D.C.C. § 1-02-02 (words construed in their ordinary sense) and on settled North Dakota Supreme Court doctrine that "includes" introduces an illustrative rather than exhaustive list.

The federal authorities for the duty statuses are in Title 10 (10 U.S.C. § 10216 for DSTs, 10 U.S.C. § 101 for definitions) and Title 32 (32 U.S.C. § 502 for full-time National Guard duty). Pay rates for these positions come from 37 U.S.C. § 206 and the Federal Wage System.

The opinion is issued under N.D.C.C. § 54-12-01 and "governs the actions of public officials until such time as the question presented is decided by the courts."

Citations and references

Statutes:
- N.D.C.C. § 57-38-30.3 (income tax adjustments)
- N.D.C.C. § 1-02-02 (statutory construction)
- 10 U.S.C. § 101 (definitions); 10 U.S.C. § 10216 (Dual-Status Technicians); 32 U.S.C. § 502 (full-time National Guard duty)

Cases:
- Cont'l Cas. Co. v. Kinsey, 499 N.W.2d 574 (N.D. 1993)
- In re Estate of Elken, 2007 ND 107, 735 N.W.2d 842
- Amerada Hess Corp. v. State ex rel. Tax Comm'r, 2005 ND 155, 704 N.W.2d 8
- Lucke v. Lucke, 300 N.W.2d 231 (N.D. 1980)
- Livingood v. Meece, 477 N.W.2d 183 (N.D. 1991)
- State ex rel. Johnson v. Baker, 21 N.W.2d 355 (N.D. 1946)

Source

• Landing page: https://attorneygeneral.nd.gov/taxable-pay-received-by-a-north-dakota-taxpayer-as-a-member-of-the-armed-forces-of-the-united-states-for-serving-in-title-32-active-guard-reserve-title-32-dual-status-technician-dual-status-state-em/
• Original PDF: https://attorneygeneral.nd.gov/wp-content/uploads/2024/03/2024-L-01.pdf

Original opinion text

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

STATE OF NORTH DAKOTA
OFFICE OF ATTORNEY GENERAL
www.attorneygeneral.nd.gov
(701) 328-2210

Drew H. Wrigley
ATTORNEY GENERAL LETTER OPINION
2024-L-01

Jackie A. Huber
Brigadier General
Deputy Adjutant General
North Dakota National Guard
Office of the Adjutant General
P.O. Box 5511
Bismarck, ND 58506-5511

Dear Brigadier General Huber:

Thank you for your letter requesting my opinion regarding the correct application of the "North Dakota taxable income" reduction for military pay created under North Dakota Century Code (N.D.C.C.) § 57-38-30.3(2)(g).

You explain that, in 2023, Senate Bill 2293 expanded a state tax exemption for "military pay" as defined in that bill. The exemption and the definition were codified in N.D.C.C. § 57-38-30.3(2)(g). Although it is clear the definition of "military pay" includes otherwise taxable compensation received by a member of the military on federal active duty under Title 10 or Title 32, on state active duty (SAD) to respond to emergencies or disasters, on full-time National Guard duty for annual training, or on federal inactive duty training (IDT), you raised questions concerning compensation for other military service. In particular, you asked this office to analyze whether compensation for Active Guard Reserve (AGR) members, National Guard Dual Status Technicians (DSTs), Dual Status State Employees (DSSEs), and National Guard members on active duty orders for special purposes (ADOS) is included in the tax exemption. For the following reasons, it is my opinion that taxable pay received by a member of the armed forces of the United States for serving in any AGR, DST, DSSE, or ADOS status constitutes military pay under N.D.C.C. § 57-38-30.3(2)(g).

Analysis

North Dakota Century Code § 57-38-30.3(2)(g) states, in part:

For purposes of this section, 'North Dakota taxable income' means the federal taxable income of an individual, estate, or trust as computed under the Internal Revenue Code of 1986, as amended, adjusted as follows:

g. Reduced by the amount of military pay received by a taxpayer as a member of the armed forces of the United States on federal active duty, member of the national guard, or reserve member of the armed forces of the United States, to the extent that military pay is included in North Dakota taxable income of the taxpayer. For purposes of this subdivision, 'military pay' includes all federal pay for training, education, mobilization, and bonuses and state pay when called to support an emergency on State active duty. (emphasis added)

Members of the Army, Navy, Air Force, Marines, Coast Guard, Space Force, and National Guard are members of the armed forces of the United States and therefore may exempt their military pay from their state income calculations. The definition of "military pay" in N.D.C.C. § 57-38-30.3(2)(g) refers to the source (federal or state government) and purpose (training education, mobilization, bonuses, and supporting emergencies) of the pay at issue. A member of the armed forces of the United States may receive pay from different sources for various purposes, however, depending on their duty status. A member's duty status is based on many factors, including the type of duty being performed, the funding source for the pay and benefits, the area of operation, the applicable title of the United States Code calling the military member to duty, and the status of the commanding official.

The duty statuses you identify in your inquiry are necessary for the National Guard or a reserve component of the Army, Navy, Air Force, or Marine Corps to maintain military operations and ensure readiness. Although some of the statuses include work that is technically deemed civilian duty for purposes of the National Guard, much of that work would be performed by active duty service members in other military branches, and each of the duty statuses is dedicated to performing essential services for the military. Moreover, an individual in any of the duty statuses must be a member of the military to qualify for the position and must wear a military uniform while working, and each of their positions is subject to the control of military officers. Positions for military members on AGR, DST, and ADOS duty statuses are funded directly by federal funds, while DSSE positions are funded by the state and then reimbursed by the federal government under cooperative agreements. Additional information about each of the duty statuses at issue follows.

• Title 32 Active Guard and Reserve (AGR): AGR means active duty performed by a member of a reserve component of the Army, Navy, Air Force, or Marine Corps, or full-time National Guard duty performed by a member of the National Guard pursuant to an order to full-time National Guard duty, for a period of 180 consecutive days or more. This duty includes organizing, administering, recruiting, instructing, or training the reserve components. Individuals in this duty status receive almost identical benefits and pays as their active duty counterparts.

• Title 32 Dual-Status Technician (DST): A DST is a federal civilian employee under the exclusive control of a state official, namely the Adjutant General, who hires, fires, and supervises their employment. DST positions are specifically classified to require military membership as a condition of employment, and each of these positions corresponds with the employee's military rank. DSTs are responsible for organizing, administering, instructing, or training the National Guard and for the maintenance and repair of military supplies. They also must train and perform general military duties to ensure their readiness to enter active service at any time. Compensation for a DST is based on the DST's position description or classification in accordance with the Federal Wage System (FWS) set by the federal Office of Personnel Management (OPM). DST positions are not compensated based on the DST's military grade.

The civilian employment of a DST is contingent upon the DST maintaining military membership. If a DST ceases to maintain their status as a member of the armed forces of the United States, the DST effectively loses their federal civilian employment. A DST is required to work their federal civilian hours in addition to military duty under Title 32 (e.g. IDT, Title 32 Active Duty) when required of their military duty position. A DST may also be called to Title 10 Active Duty, and they may be activated by the Governor for State Active Duty (SAD) status.

• Dual-Status State Employee (DSSE): A DSSE is a state civilian employee under the same structure and criteria as a DST. DSSE positions require military membership as a condition of employment. If a DSSE ceases to maintain their status as a member of the armed forces of the United States, the DSSE effectively loses their state civilian employment.

• Full-Time National Guard Duty - Active Duty for Operational Support (ADOS): The term "full-time National Guard duty" means training or other duty, other than IDT, performed by a military member of the Army or Air National Guard of the United States in the member's status as a member of the National Guard of a state or territory, the Commonwealth of Puerto Rico, or the District of Columbia under section 316, 502, 503, 504, or 505 of Title 32 for which the member is entitled to pay. ADOS is one type of full-time National Guard duty, and it is intended to provide the necessary resources to support existing or emerging requirements of the National Guard. Individuals on ADOS may engage in training, short-term National Guard projects, administrative or support functions, and other types of service.

The services provided by members on these duty statuses are necessary to maintain military operations, but are not necessarily considered "training, education, mobilization, and ... support [for] an emergency on state active duty," thus leading to your question of whether members on the duty statuses are allowed to take the tax exemption in N.D.C.C. § 57-38-30.3(2)(g). To answer your question, we must determine whether the types of service listed in the statutory definition of "military pay" are the only types of military service for which pay is exempt. Statutes are construed to ascertain the intent of the Legislature. To identify that intent, we look to the plain, ordinary, and commonly understood meanings of words used in the statute, unless the words are defined in the Century Code or the drafters clearly intended otherwise.

The statutory definition of military pay "includes" pay from specified funding sources for specified types of service. Use of the term "includes" in a statutory definition is a word of enlargement and not a term of limitation. The North Dakota Supreme Court has held that use of that term "ordinarily indicates an 'incomplete list.'" Moreover, the North Dakota Legislative Drafting Manual, which sets forth the rules for drafting legislation, instructs drafters to use the word "includes" in lieu of the phrase "includes, but is not limited to," indicating that the word and phrase share the same meaning when used in statutes. Under the rules of construction, therefore, "military pay" may include federal pay for things other than training, education, mobilization, and bonuses, and may include state pay for services other than when called to support an emergency on state active duty. Read in its entirety, then, the state income tax exemption in N.D.C.C. § 57-38-30.3(2)(g) applies to any income that is otherwise taxable by the state and which is received by a member of the armed forces of the United States for work related to military duties.

Members of the military in AGR, DST, DSSE, and ADOS duty statuses perform functions that are essential to the military operations and readiness of the National Guard and reserve components of military branches. Their employment positions are under the control of military officers; they are required to wear military uniforms at work; they provide day-to-day continuity in the operation and training of Army and Air National Guard units; and they must be National Guard members. Compensation for this work appropriately fits within the definition of military pay. Based on this, it is my opinion that taxable pay received by a North Dakota taxpayer as a member of the armed forces of the United States for serving in AGR, DST, DSSE, or ADOS duty status constitutes military pay under N.D.C.C. § 57-38-30.3(2)(g) and is, therefore, tax exempt as provided therein.

Drew H. Wrigley
Attorney General

This opinion is issued pursuant to N.D.C.C. § 54-12-01. It governs the actions of public officials until such time as the question presented is decided by the courts.