How sales tax can encourage disaster preparedness and recovery
Record-breaking rain, floods, and tornados are plaguing the center of the country. The West Coast is preparing for yet another year of ravaging wildfires. Hurricane season is upon us. Weather-related disasters cost the United States more than $1.6 trillion last year, and 2019 is shaping up to give 2018 a run for its money. In what ways can sales tax help with disaster preparedness and recovery?
Sales tax holidays encourage disaster preparedness
Alabama provides the nation’s first severe weather preparedness sales tax holiday, which is held each year in February. During the February 2019 tax-free period, portable generators priced $1,000 or less and a variety of supplies with a ticket price of $60 or less were exempt from state sales tax. Local sales tax also didn’t apply in participating localities.
Florida’s disaster preparedness sales tax holiday is happening now: It started May 31 and runs through June 6, 2019. A variety of preparedness supplies are exempt from sales tax during this time, from portable generators priced $750 or less to reusable ice priced $10 or less.
Texans should already be prepared: The Texas tax-free period for emergency preparation supplies ran April 27–29, 2019. Portable generators (priced less than $3,000), hurricane shutters and emergency ladders (priced less than $300), and a host of other supplies that cost less than $75 were exempt from state and local sales tax. The Texas Comptroller is already promoting the 2020 emergency preparation supplies sales tax holiday.
Virginians can save sales tax on emergency supplies like portable generators (priced $1,000 or less), gas-powered chainsaws ($350 or less), and a variety of other products ($60 or less), during its August 2–4, 2019, annual sales tax holiday.
Tax relief for victims of disaster
States typically provide tax extensions for victims of disasters caused by nature or man. They may also grant an extension for an individual or business adversely affected by a disaster in another state. The length of the extension is determined on a case-by-case basis.
Occasionally, a state will offer additional tax relief. For example, many charges associated with the repair of residential and non-residential property damaged by a declared disaster are exempt from sales tax in Texas, as are charges for cleaning up property and laundering or dry-cleaning damaged clothing.
After Hurricane Maria hit in 2017, the Puerto Rico Department of Treasury announced that qualifying donations of taxable goods by foreigners would not be subject to Puerto Rico sales or use tax (hat tip to KPMG). Similarly, taxable goods purchased with a client assistance debit card issued by a state agency for disaster relief are exempt from sales tax in North Carolina.
In all states, tax extensions and other tax relief are generally available only to people residing or doing business in affected areas, which are usually named by the governor of the state or the U.S. president.
Sales tax perks for businesses providing disaster relief
Some states don’t require out-of-state businesses to collect and remit sales tax when they’re in the state to provide disaster-related assistance. Certain restrictions usually apply: To qualify for such relief in Texas, a business must be an affiliate of a Texas business or invited into the state by a Texas business, and must be in the state to perform “disaster-related work to repair or restore damaged critical infrastructure during a disaster response period in a declared disaster area.”
North Dakota provides a limited exemption from sales and use tax and other fees for out-of-state businesses that came into the state to repair critical infrastructure damaged or destroyed by a declared natural disaster. Arkansas and Georgia have a similar policy, .
Not all states are so accommodating. In 2017, 19 states told Bloomberg BNA that a business establishes sales tax nexus when it comes into the state to assist with relief efforts (hat tip to Accounting Today).
The 2021 sales tax changes report: midyear update
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