Hurricanes Harvey and Irma have both caused massive destruction across the United States and abroad. As a result of Harvey alone, it is estimated that “close to 40,000 homes are heavily damaged, and 7,000 were destroyed,” according to the Washington Post. Meanwhile, in Florida, it’s estimated that Irma caused about 6.5 million customers to lose power, the New York Times reports. As residents and businesses in the southern United States try to repair or rebuild they may find some hope in Texas and Florida sales tax provisions. Additionally, businesses that otherwise don’t have nexus in Texas or Florida that move employees or property there may find that they qualify for special disaster relief nexus provisions.
As Hurricane Harvey was officially declared a federal disaster, Texans affected by Harvey may be slightly gladdened to learn that they qualify for sales tax exemptions on certain services and items. Specifically, taxpayers may claim a tax exemption for labor to repair, restore, remodel, or maintain personal property damaged by Hurricane Harvey. This exemption, on what would otherwise be taxable services, can be claimed for labor to repair furniture and appliances, as well as labor to launder or dry clean damaged clothing or other items.
For Harvey victims who receive FEMA or Red Cross benefits, there is also a sales tax exemption for all goods and services purchased with a FEMA or Red Cross debit card voucher, including prepared food, for those who need a hot meal. Additionally, charitable school districts and parent-teacher associations may claim an exemption from sales tax on purchases of clothing and other supplies that will be given to students who are victims of a disaster.
Also in Texas, homeowners whose houses were damaged may be somewhat relieved to know that the labor to repair their property will be nontaxable, as residential real property repairs are always nontaxable in Texas. While nonresidential real property repairs are generally taxable, in a declared disaster area, purchasers may claim an exemption from sales tax on separately stated charges for labor to repair or restore property that is damaged by the disaster. Additionally, if a business owner needs to completely demolish their property and build a new building, those demolition and new construction services are never subject to tax in Texas.
While Floridians may not receive as many sales tax benefits as victims in Texas, those affected by Hurricane Irma may find some comfort in the fact that real property repair, demolition, and construction contracts are not subject to tax in Florida.
Additionally, both Texas and Florida offer special nexus provisions for out-of-state businesses that perform disaster-related or emergency-related work. Texas does not consider out-of-state businesses to be engaged in business in Texas if their physical presence in Texas is limited to entering the state to perform disaster-related or emergency-related work during a disaster response period. In Florida, out-of-state businesses performing emergency-related work during a disaster period are not considered to have established a level of presence that would require the business to register, file, and remit state or local taxes or fees, or be subject to any registration, licensing, or filing requirements.
While a little sales tax relief may not prove a panacea for those affected by natural disasters, perhaps it can be a small step towards rebuilding and provide help for those in need.
Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: How should states use tax policy to aid in disaster relief?
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