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There's a pretty long military.com (Stars and Stripes) article on the matter of taxes on some DoD employees in Germany:

The U.S. contends the situation amounts to a treaty violation, but so far American officials have been powerless to stop it. It’s been happening for years, even while U.S. taxpayer dollars inject billions annually into the German economy through the military community’s spending.

But despite U.S. objections, and even indications from Foreign Minster Heiko Maas and other senior German officials that they want the matter resolved, the situation is at a standstill.

It’s unclear what authority the federal German government has over localities or how it could force tax officials at the state level to back off. [...]

In Germany, unlike any other allied country where U.S. forces are based around the world, troops and civilian personnel are exposed to liabilities if local tax offices decide that a military member has motives for being in the country beyond just their job.

Last year, there were nearly 400 cases involved SOFA status personnel in the greater Kaiserslautern area alone, tax officials said at the time. They included Air Force Master Sgt. Matthew Larsen, who was targeted for extending a tour and being married to a German woman.

Being a teacher at a U.S. base school for long periods of time or sending kids to a German school also have put people on the tax collector’s radar.

In the United Kingdom, Italy, Japan and South Korea, all countries that host large numbers of service members, DOD personnel routinely marry locals or have extended tours without threat of income taxation, according to commands that oversee SOFA matters in those countries.

So why are the local/land tax authorities going after the US DoD personnel on this issue, when it is clearly annoying the federal government of Germany? Why is there a political divergence between the local/land and federal government on matter and why is it manifesting now?

Note: DoD means department of defense, and SOFA means Status of Forces Agreement.

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    Can you specify what kind of taxes the local authorities want from them? I don't think any of their income should be relevant to local authorities. I assume they don't get any exemption from things like sales tax. Some property taxes might be an area where the local authorites have a claim that is contested?
    – quarague
    Sep 20 at 6:30
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    @quarague, why would their income not be relevant? Once the tax office decided that troop status does not apply, any income would be taxed in the country where it is earned (plus anything that the USA decided to tax from their cititzens world wide). And the article talks of annual taxes with quarterly advance payments, which suggests income tax for a freelancer or independent contractor (sounds odd for a teacher). Certainly the article does not give all the necessary details to judge the merits of either the tax bill or the complaint. Sep 20 at 7:23
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    @quarague: the article isn't terribly clear on that.
    – Fizz
    Sep 20 at 7:52
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    Another question would be why they shouldn't be liable to paying local taxes, the same as any other foreign citizen (US or other) in those places...
    – ilkkachu
    Sep 20 at 9:34
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    @quarague Property taxes for a detached house would typically be a few hundred Euro per year. I am not sure what kind of structure would warrant 3000 Euro per quarter (but for comparison, that is about the amount of income tax I pay on a middle class salary). While income tax is a federal matter, collection happens on the state/local level (the tax bill for my property and my income tax comes from the same tax office) so that might be what is happening here. But there is certainly not enough information to say anything really conclusive. Sep 20 at 11:38
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The literal answer to the question

So why are the local/land tax authorities going after the US DoD personnel on this issue, when it is clearly annoying the federal government of Germany?

is "because Germany is a federal republic and local tax authorities do not take orders from the federal government", which is an idea that in some way should appeal to many US Americans. Underlying the federal structure is the idea that issues are solved as close to their point of origin as possible, and if the taxes are local or state taxed then in all likelyhood the federal government has no say in it, especially not the foreign secretary, who has no authority over taxes in any case.

The tax-exempt status is based on the "Nichtwohnsitzfiktion", the legal fiction that you do not permanently live in the country even though you are there almost all of the time. There are ruling likes this from a Hessian Court that say that the Nichtwohnsitzfiktion does not apply to people who have no interest in returning to their home country (e.g. when they buy a house, because the idea that a self-owned home is something temporary is rather alien to the German mind, so one can speculate that there is some cultural issue at play, but in any case this is not just about being married to a local, this about having your "Lebensmittelpunkt", the center of you life, in the country, judged among other things by social relations and the value of you non-movable assets).

(Update: Since this wasn't clear, this means the courts think that SOFA status does not even apply here since the people billed did not act in their capacity as DoD employees, so in their opinion (which might be true or false) the tax office does not break or circumvent treaty with the USA.)

So in theory, it closes a loophole for wannabe permanent residents who dodge taxes by claiming a status that applies only to temporary "residents" (not sure if that is even the right word for a soldier deployed here).

In practice you, I and Heiko Maas probably agree that this is petty and stupid, but as a local matter it is just not within Maas' purview to do anything about it.

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    @Fizz, not just about property taxes, it seems. But there are cases like US citizens resident in Germany who then start to work as civilians for US forces -- should they be treated any different from Germans who take such a job?
    – o.m.
    Sep 19 at 15:11
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    Also that the article mentions that the teacher already pays taxes in the US is completely irrelevant, because the USA taxes all their citizens world wide, no matter how much taxes they have already payed in the country they actually work in (even if many US Americans are oblivious to the fact). So this is not a special burden, at least not once the court has decided that she owed taxes in the first place. The only relevant detail is that for some reason they chose not to recognize the tax exempt status in the first place. Sep 19 at 22:07
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    @Acccumulation they did not overrule the treaty. They decided that the treaty does not apply here. If that was a blatant violation of the treaty, then either the German Federal government or you own would probably have sued, but apparently neither side saw a winnable case here. Sep 20 at 7:18
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    Wouldnt it be also illegal for the local tax authorities not to collect tax? I mean they have to follow the law, and cannot just decide not to tax friends.
    – lalala
    Sep 20 at 8:53
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    "Heiko Maas probably agree that this is petty and stupid" - not necessarily; what I read is that he wants this 'resolved' - another way of resolving the issue if for America to just accept it :-)
    – j4nd3r53n
    Sep 20 at 14:33
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Germany is a federal state, and it is thus expected that policies and political goals of the federal government and of the state governments will not always align. The US currently exhibits plenty of examples where to say that the federal government would be "annoyed" by actions of the states would be severe understatement.

Kaiserslautern, which was mentioned in the question, is in the state Rhineland-Palatinate, currently governed by an SPD/Greens/FDP coalition, in contrast to the CDU/SPD/CSU federal government. Of the major German parties, the CDU is probably the one valuing a close relationship to the US the most.

The context to this issue includes a certain widespread unease with the particulars of the German-US relations. That the US and Germany should be allies is only questioned on the fringes of the political spectrum (by The Left, and by the fascist AfD). However, many Germans share the sentiment that Germany should show more self-confidence and independence in this relationship, and that the US behaviour is not always appropriate.

This view became mainstream with the Iraq invasion, which was broadly opposed in Germany. Under Obama, trust improved for a bit, but the revelation that the German spy agency BND was sharing essentially all its data with the US, and that the NSA was spying on Angela Merkel, then reinforced it. Trump of course was generally reviled by the Germans. It's very relevant for the question at hand that this unease is closely linked to the US military, and its international uses.

With this in mind, a policy of "Let's not let US soldiers get away with not paying German taxes they owe[1]" is not particularly surprising.

[1] The legal question of who is correct in whether these soldiers indeed owe taxes seems less relevant for the political question, and is certainly beyond my competence to judge.

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The federal tax office in Germany is independent, not even the Kanzler can do something about it.

Everyone who has his place of abode ("Wohnsitz") in germany have to pay taxes and the German federal tax office or better saying all tax offices in Germany are really strict about enforcing law (They're notorious for that in Germany). The place of abode isn't necessary the place you choose but it's the place where your center of life is. Where you have your contacts, friends, family and such things. That's more or less the German law definition of place of abode ("Wohnsitz").

If you have a German wife in Germany maybe also some kids with her, your assumed place of abode is in Germany and if your place of abode is in Germany you have to pay taxes per German tax law.

Having an own home is in Germany an indication that you live longer here, because it isn't common here to have a house for only a short time. For a short time it would be common to rent a home here in Germany. I think thats some cultural thing.

If a soldier stops working for the US Army and starts working for a civilian US firm in germany it is assumed they're not any more soldiers and protected against taxing under the NATO-status, because they're not working for the US Army, but for a private firm with their place of abode in germany. In Germany it's common that the Bundeswehr is seen different from civilian firms. A civilian firm that works/produces something for the Bundeswehr isn't part of the Bundeswehr, nor do their workers get any special benefits like soldiers.

Then there's also a problem from a law structure. The health and long term care insurances are lowering the gross income and that would also lower the income tax in germany (it's affecting the net income only). So that the employees doesn't pay too much monthly there is the law about the "Mindestvorsorgepauschale" (minimum lump sum), so that the income tax is lowered monthly and not just at the end of the year. The problem with that is that soldiers doesn't pay into the health and long term insurances in germany, because the U.S. pays for that. But the lowering of income is on the paycheck and so the soldiers get a tax advantage. Thats about 1900 € (3000 € with tax class III) per year. If a soldier would has "Berufsunfähigkeits-, Haftpflicht- oder Krankzusatzversicherungen" they doesn't have to pay the 1900/3000€ per year.

That was a shortened translation from this website from a tax consulting company.

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There are already many good answers here, but I wanted to directly address the question in the title, since that may indeed seem surprising to someone who is used to a more centralized, top-down form of government.

Why are German local authorities taxing DoD employees, despite the protests of the US and of the German federal government?

The municipal and state tax authorities do not answer to the federal government, and they most certainly do not answer to the US. So, the "despite" part is irrelevant: they are simply doing their jobs, and neither the German federal government nor the US have any say in it.

We can split this question into two parts:

Why are German local authorities taxing DoD employees […]?

Because they believe that according to their tax codes, those people owe taxes.

[…], despite the protests of the US and of the German federal government?

They are not doing this "despite" the protests of the US and of the German federal government. They are doing it, period. The German federal government and the US are simply irrelevant to them.

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