Individual Income Insights: Can State Tax Laws Address All the Disasters of 2017?


Puerto Rico Disaster

In the last year, the United States and Puerto Rico endured numerous disasters, including hurricanes, tornados, wild fires, drought, mud slides, flooding, hail storms, crop freezes, and earthquakes. The total cost of these disasters is estimated to exceed $300 billion. States address natural disasters in a number of ways, including offering tax relief to those affected by the event. In addition to allowing late filing of tax returns, which most states do, there are a number of other ways that states address disasters.

 

Many states conform to the federal treatment of disaster relief payments and do not include such payments in gross income. Qualified relief payments include payments used for reasonable and necessary personal, family, living, or funeral expenses, including personal property expenses.

 

Some examples of other types of relief provided by states after an emergency include the following:

 

Tidal Waves, Hurricanes, Earthquakes, and Volcanic Eruptions

 

Hawaii allows property loss deductions due to natural disasters, including tidal waves, hurricanes, earthquakes, volcanic eruptions, and flood waters from rivers and streams. The deduction is allowed to the extent of loss not compensated for by insurance. The tax payer can deduct the amount either in the taxable year in which the loss was sustained or in equal installments over a period of five years, with the first year being the calendar year or fiscal year of the taxpayer in which the loss occurred.

 

In California, when the governor declares a state of emergency, taxpayers can deduct losses sustained in- state that result from the disaster. Additionally, property tax relief is available after a major calamity such as a fire, an earthquake, or flooding if the property is located in a county that had adopted an ordinance allowing property tax relief.

 

Disaster Emergency-Related Work

 

Out-of-state employees working in Wisconsin after the governor has declared a state of emergency are not required to file and pay income taxes or be subject to withholding for their disaster emergency-related work performed during the disaster period.

 

Louisiana excludes from gross income compensation for disaster or emergency-related work earned by an out-of-state employee for personal services rendered in Louisiana during a disaster or emergency period. This exclusion also applies to all income received by nonresident businesses for disaster or emergency-related work conducted in the state during a disaster or emergency period.

 

Wildfire Mitigation Measures

 

Owners of private land located in Colorado can subtract from their taxable income certain costs incurred while performing wildfire mitigation measures on their property if the costs are for services primarily used for wildfire mitigation measures.  

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Are states doing enough to provide tax relief for those impacted by disasters?