- State and Local Tax Relief for Victims of Hurricane Katrina
- October 10, 2005 | Authors: Lisa B. Petkun; Lance S. Jacobs
- Law Firms: Pepper Hamilton LLP - Philadelphia Office ; Pepper Hamilton LLP - Washington Office ; Pepper Hamilton LLP - Philadelphia Office
The Internal Revenue Service and many states have responded to the extreme devastation caused by Hurricane Katrina with various relief provisions, including many types of tax relief. Generally, tax relief is provided in the form of extended return and payment filing deadlines with waivers of any corresponding penalties or interest.
Listed below are states conforming to the federal extended deadline of January 3, 2006:
- Louisiana (generally; see alternative dates section below)
- Mississippi (for income tax filings due on or after August 29, 2005)
- New Mexico
- New York City (for the general corporation tax, unincorporated business tax, and banking corporation tax, among others)
- South Carolina
- Wisconsin (for personal income tax return or payments of estimated tax).
The following states, while exempting taxpayers from the late filing and payment penalties, do not provide for interest abatement:
The following states have extended the filing deadline for tax return filing and payments to a date other than January 3, 2006:
- Delaware: October 31, 2005
- Florida: January 18, 2006 (for corporate income tax returns); the state Department of Revenue will work with affected taxpayers unable to file sales tax or other returns on a case-by-case basis
- Idaho: October 31, 2005
- Illinois: October 31, 2005
- Kentucky: October 31, 2005
- Louisiana: 30-day extension for state sales tax returns originally due on September 20, 2005; 60-day extension to file all other state tax returns and payments due between August 30 and September 30, 2005.
- Mississippi: October 20, 2005 for sales and use tax filings due in August
- Missouri: 60-day filing extension
- New Jersey: October 31, 2005 for tax filings due between August 29-October 31, 2005
- New York: will waive late payment and filing penalties on case-by-case basis
- Oregon: February 28, 2006
- South Dakota: will give sellers from the affected areas as much time as is necessary to file and pay their South Dakota tax returns.
- Tennessee: will work with affected taxpayers on a case-by-case basis.
- Texas: has granted businesses in affected areas an extension of up to 90 days to file tax returns due in September and October
- Wisconsin: will allow an extension equal to the federal extension plus 30 days for filing a corporate income tax return.
Alabama, California, Louisiana, New York and Washington will follow the IRS Notice 2005-68, Special Relief to Encourage Leave Donation Programs for Victims of Hurricane Katrina. The Notice allows employees to donate vacation, sick or personal leave time in exchange for employer cash payments to qualified tax-exempt organizations providing relief to Hurricane Katrina victims. More guidance regarding this program can be found in IRS Notice 2005-68, 2005-4- IRB.
The following states have waived sales and use taxes on purchases made by FEMA, with FEMA assistance cards and/or with American Red Cross Client Assistance (ARCCA):
- South Carolina
Below is a general description of other relief from state and local taxes provided to address the needs of hurricane victims:
Disaster victims are given the option of claiming their disaster loss in the year the disaster occurred or in the tax year before the disaster occurred.
- Employers directly affected by Hurricane Katrina who need additional time to file state payroll tax reports and/or deposit state payroll taxes may be eligible for an extension.
- Victims of Katrina have a one-month extension to file and pay: sales and use tax, cigarette tax and tobacco products taxes, alcoholic beverage excise taxes, gasoline tax, use fuel tax, diesel fuel tax, jet fuel tax, interstate user tax, timber yield tax, integrated waste management fee, tire fee, occupational lead poisoning prevention fee, underground storage maintenance fee, oil spill response, prevention and administration fees, energy resources surcharge, emergency telephone users surcharge, natural gas surcharge, ballast water fee, electronic waste recycling fee, water rights fees, and hazardous waste fees.
- Relief from interest and penalties may be provided, except no relief from interest is available for the tire-recycling fee and the natural gas surcharge.
- Rent paid with American Red Cross disbursing orders or vouchers as well as payments made directly by charitable organizations are exempt from sales tax.
- Has suspended collection of all state sales and use tax, state excise tax and the second motor fuel tax as those taxes relate to motor fuel used to propel motor vehicles on and off public highways, from September 3-September 30, 2005. This suspension does not apply to jet fuel.
- Retroactively exempts displaced Hurricane Katrina victims from the state sales tax normally placed on hotel room rentals. Victims seeking the exemption must provide the complete residential addresses from which they were displaced and written statements that their occupancy of the hotel rooms was attributable to the displacement. People who have been billed for the tax should contact the hotels to receive a credit or refund.
- Louisiana issued a reminder regarding the state's policy of providing reimbursement of the amount of sales tax paid on physical personal property that has been damaged by a natural disaster. See Natural Disaster Refund Guidelines at www.revenue.louisiana.gov for more information.
- The Department of Revenue has suspended state tax compliance activities in the affected areas for at least 60 days.
- In following the IRS guidelines concerning casualty losses, affected taxpayers are given the option of claiming disaster related casualty losses on 2004 or 2005 returns.
- Has exempted motor carriers from the highway use tax and fuel use tax when traveling on the public highways of New York for the purpose of aiding in disaster relief efforts.
- Has temporarily waived the commercial motor vehicle requirements regulations of the purchase of Texas fuel trip permits for commercial carriers engaged in disaster relief efforts in affected areas.
- Has waived the state hotel/motel tax for victims of Katrina who have set up temporary residency in Texas.
- Texans who evacuated their homes because of Rita may claim an exemption from the state hotel/motel tax by signing a certificate that explains their stay is due to Rita.
Other Federal Relief
To offer relief to employees, an employer may elect to establish a charitable organization to provide assistance to employees effected by Hurricanes Katrina and Rita. By establishing such an organization, assistance payments to employees will not be taxable to the employee, and the employer will be able to claim a charitable deduction. The IRS has issued Publication 3833, Disaster Relief: Providing Assistance Through Charitable Organizations, which provides relevant guidance on this issue.
Employer-Established Assistance Programs
To qualify under these programs, the proposed organization must operate to benefit a large or indefinite charitable class, as opposed to an individual or limited group. An employer-supported employee assistance organization may provide crisis counseling, rescue services or emergency aid without a showing of financial need to an employee; however, other long-term financial assistance, such as housing, can be provided only if the employees (and their families) were in financial need.
Ideally, an employer relief organization should have an independent selection committee or adequate procedures to ensure that decisions about which employees are eligible for relief payments are based on a fair and objective evaluation of the employee's needs.
An employer-sponsored relief organization may be classified as a public charity or as a private foundation, depending on the sources of its support and whether it meets certain tests contained in the Internal Revenue Code. This distinction will be critical as a public charity is granted wider latitude in providing assistance to employees; conversely, a private foundation can only make disbursements to employees in those situations that meet the definition of "qualified disasters," which include, but are not limited to, federally declared disasters.
An employer wishing to establish an employee assistance program must create an organization and file for tax-exempt status with the Internal Revenue Service. State-level exemption certification procedures also may be needed. The IRS has established an expedited review process for new organizations providing relief for victims of Hurricanes Katrina and Rita.