• States Offer Tax Relief in the Wake of Natural Disasters
  • August 10, 2015 | Authors: David H. Godenswager; David M. Kall; Susan Millradt McGlone
  • Law Firm: McDonald Hopkins LLC - Cleveland Office
  • California
    Recent weather has wrought havoc in the Golden State, causing the California State Board of Equalization (BOE) and the Employment Development Department (EDD) to provide assistance to taxpayers in numerous counties.

    On July 31, 2015, Gov. Jerry Brown declared a state of emergency in Butte, El Dorado, Humboldt, Lake, Madera, Napa, Nevada, Sacramento, San Bernardino, San Diego, Shasta, Solano, Tulare, Tuolumne, and Yolo counties. The declaration will bolster wildfire response, helping to mobilize additional firefighting and disaster response resources. The wildfires have burned thousands of acres, destroyed structures, forced the closure of major highways and local roads, and continue to threaten hundreds of homes and critical infrastructures.

    That same day, the BOE announced that taxpayers in these counties may request filing extensions, relief from penalties and/or interest from some taxes and fees, and replacement copies of lost records.

    Relief from penalties and interest is available for the following programs:
    • Sales and use taxes
    • Fire prevention fee 
    • Alcoholic beverage tax 
    • Cigarette and tobacco products taxes 
    • Energy resources surcharge 
    • Emergency telephone users surcharge 
    • Natural gas surcharge 
    • Timber yield tax 
    • Fuel taxes (diesel fuel tax, interstate user tax, use fuel tax, motor vehicle fuel tax, aircraft jet fuel tax) 
    • Underground storage tank maintenance fee 
    • Oil spill prevention fee and oil spill response fee 
    • Lumber assessment fee 
    • Childhood lead poisoning prevention fee 
    • Integrated waste management fee 
    • Occupational lead poisoning prevention fee 
    • Electronic waste recycling (eWaste) fee 
    • Marine invasive species fee (ballast water management fee) 
    • California tire fee (tire recycling fee) 
    • Hazardous substances fees (environmental fee, activity fee, generator fee, disposal fee, facility fee) 
    • Water rights fee 
    The EDD has also granted emergency tax relief for the wildfires and the severe storms which caused damage in the southern California counties of Imperial, Kern, Los Angeles, Riverside, San Bernardino, and San Diego. NBC Los Angeles reported that among the worst of the destruction was a collapsed bridge on the 10 Freeway, about 50 miles west of the California-Arizona border. The EDD’s assistance allows employers in the applicable counties to request a 60-day extension of time to file their state payroll reports and/or deposit state payroll taxes without penalty or interest, as long as it receives a written request for the extension within 60 days from the original due date of the payment or return to file/pay.

    The EDD aided taxpayers in previous catastrophes as well. On May 19, 2015, Gov. Brown declared a state of emergency for the northwest California counties of Humboldt, Mendocino, and Siskiyou, those directly affected by the severe winter rainstorms. There, mudflows, debris, floods, and erosion caused significant damage to bridges, roads, and highways throughout the state.

    The EDD often grants extensions when the governor’s office declares a state of emergency; the extensions affect unemployment insurance, employment training tax, California personal income tax, and state disability insurance, which includes paid family leave.

    Arizona

    A June 2014 Kiplinger analysis ranked Arizona as the 10th most at-risk state for natural disaster (behind New Jersey, Texas, Tennessee, Missouri, Alabama, Oklahoma, Mississippi, Louisiana, and Colorado). Arizona encounters thunderstorms, flash floods, droughts, and dust storms. Between 2006 and 2013, the Grand Canyon State suffered $3.5 billion of property damage, and 93 weather-related fatalities.

    A KNAU piece from last August revealed that wildfires caused by persistent drought also play a role in the destruction. For instance, a May 2014 slide fire burned more than 21,000 acres south of Flagstaff, and cost more than $10 million to fight. Three years ago, Arizona’s largest fire, the Wallow Fire, destroyed a half million acres in the eastern part of the state.

    In light of the substantial recovery work that these storms cause, demand for resources can exceed supply. Firms often need to bring in out-of-state materials, equipment, and disaster workers to help fill the gap.

    To avoid subjecting the out-of-state workers to the additional burden of multistate tax compliance, the Arizona legislature has enacted laws which relieve some of the tax burden. Effective July 2015, the Department of Revenue has published a revised Disaster Recovery Tax Relief document that outlines general information for qualified out-of-state businesses and out-of-state employees working temporarily in Arizona concerning the tax relief offered in connection with their services.

    Among other things, the document addresses the following:
    • What counts as a declared disaster
      • A state of emergency declared by the Arizona governor
      • A presidential declaration of a federal major disaster or emergency in Arizona
      • A disaster or emergency event in Arizona that is designated by the division of emergency management and that requires disaster recovery
    • What constitutes a qualifying out-of-state business
      • A business entity that existed as an operating entity before the declared disaster, whose services are requested by a registered business in Arizona, or by the government, for the purpose of performing disaster recovery 
      • A business that is only present in Arizona for disaster recovery 
      • A business that does not conduct business in Arizona 
      • A business that does not have or maintain any state or local registrations, licenses, or certifications 
      • A business that does not make any tax filings in Arizona
    • What constitutes a qualifying out-of-state employee
      • An Arizona nonresident individual who is temporarily in Arizona solely to perform disaster recovery work during a disaster period
    • What are the filing requirements
      • For single, unmarried heads of household or married filing separate returns, when the taxpayer’s adjusted gross income from Arizona is $5,500 or more 
      • For married taxpayers filing a joint return, the state requires a return when the adjusted gross income is $11,000 or more 
      • For any taxpayer whose gross income is $15,000 or more, regardless of the amount of taxable income
    • What are the withholding requirements
      • Qualified out-of-state businesses need not withhold income taxes from the wages of qualified out-of-state employees for performing qualified disaster recovery work in Arizona from a declared disaster during a disaster period, but they do need to withhold income taxes from the wages of Arizona residents who are hired to perform recovery work
    Beyond these details, the document also answers questions pertaining to filing requirements for out-of-state partnerships and corporations, use and transaction privilege taxes, and personal property taxes.