Sales Tax Slice: Post-Snowzilla Recovery Efforts Highlight Importance of State Tax Disaster-Relief Legislation

To say the least, Winter Storm Jonas has disrupted life for many of us on the East Coast this week. Affectionately dubbed “Snowzilla” by the Washington Post, the storm has led political leaders in Washington, D.C., Maryland, and other states to declare states of emergency and apply for federal disaster relief. But what of sales tax?

It might intrigue you to learn that many states have recently enacted taxpayer-friendly legislation that is relevant here. The legislation assists out-of-state businesses and employees when they enter the state to perform disaster- or emergency-related work.

NCSL Leads the Trend

The National Conference of State Legislatures (NCSL) led the trend in 2011 by resolving to support states’ efforts to restore property and infrastructure during declared disasters and adopting model statutory language on the issue. Nearly half of all states have passed legislation similar or identical to the NCSL’s model language since then, and the number has swollen to 22 total states currently.

In 2015 alone, nine states joined the trend, and another held a hearing on the matter.

The NCSL model language exempts out-of-state businesses and employees that perform work or services during a disaster response period from the normal nexus and residency requirements and business and employee tax obligations. It proposes several intricate defined terms (e.g., “critical infrastructure,” “declared state disaster or emergency,” and “disaster response period”), but otherwise the gist is straightforward: it minimizes impediments that would delay or discourage recovery efforts. By not requiring out-of-state vendors providing emergency services in the state to collect sales tax on their sales during the disaster period, the relief efforts can go more smoothly and expediently.

Many states affected by Snowzilla are on board. For example, Virginia, Maryland, Pennsylvania, Delaware, and New Jersey have all passed legislation, as the NCSL’s chart indicates.

Other Friendly Laws

The NCSL’s model language is not the only taxpayer-friendly disaster response legislation one should consider. For example, in Kentucky, if an event damages a building owner’s property in a federal disaster area, then the building owner can receive a sales and use tax refund for the amount paid to purchase building materials used to either repair the building or construct a new one.

Further, Kentucky specifically addresses snowstorms in agency guidance. A Kentucky publication from last June announces that “[d]ue to the snowstorms in February 2015 . . . certain counties in Kentucky have been declared eligible for federal disaster relief aid.” The publication also states that “[a] sales and use tax refund incentive is available to businesses and homeowners who rebuild from damages in a federal disaster relief area.”

Sales tax might not be the first thing that people consider when they think about disasters, but in light of the current trend, it would appear that state legislatures are increasingly interested in spurring recovery efforts.

Continue the discussion on LinkedIn: Should states adopt disaster-relief tax legislation?

For more information about state tax issues, sign up for a  free trial on Bloomberg BNA’s Premier State Tax Library.

By Ryan J. Voorhees