Hurricanes Harvey and Irma were two extremely powerful and damaging hurricanes that captivated a nation and wreaked havoc on many residents of Texas and Florida. The full scope of the utter devastation left by these hurricanes has not been realized yet. The combined costs of both storms including damages to property value and lost output are estimated at $175 billion to $200 billion. President Trump has signed legislation providing funds for the recovery effort as hurricane damage assessments are ongoing, but this may provide opportunities for out-of-state contractors.
The costs incurred are massive and include not only property damages but also disruption to business, increased unemployment rates for weeks, damage to transportation and infrastructure, crop loss, increased fuel costs and loss of cherished belongings. As with most natural disasters the combination of insurance money and government aid will hopefully cover the cost of the property damage and lost economic output. The hurricanes are expected to drastically impact economic results during the third quarter of 2017 but will likely give the overall economy and construction industry a boost over the next twelve to eighteen months.
The catastrophic events present many challenges in recovery and rebuilding, while the speed at which rebuilding efforts proceed will be challenging. Florida, a heavy tourism state and Texas another large market will assess the damages and begin to rebuild. Per economists and construction industry experts there were already mounting labor shortages of skilled construction labor. Enticing engineers and construction workers in other parts of the country to relocate to the storm-ravaged areas won’t be easy, even with the promise of higher wages. Another factor impacting the rebuild will be the hurricanes’ effect on material prices (e.g., steel, lumber, PVC, drywall, roofing). Nonetheless, most of the rebuilding is anticipated to be completed by the end of 2018. The primary efforts for engineers now are transportation-related assessments such as inspection of bridges and roads hit the hardest by the storms.
The rebound of the Texas and Florida markets is vital to the economy and creates a potential opportunity for contractors located outside these states to come in and assist with the rebuilding effort. There are currently a number of contractors in neighboring states and even further that are heading to Texas and Florida to assist with the recovery and rebuild process. As with any work performed out of state, your business should be aware of the regulations, rules and compliance requirements when performing services in the states of Texas and Florida.
Texas provides favorable rules for out-of-state businesses that are performing disaster- or emergency-related services in the state. An out-of-state business entity that enters Texas at the request of an in-state business entity under a mutual assistance agreement, or that is an affiliate of an in-state business entity is exempt from Texas licensing and registration requirements when its business in Texas is limited to performing disaster- or emergency-related work to repair or restore damaged critical infrastructure during a disaster response period in a declared disaster area. The out-of-state entity will not be required to collect and remit Texas sales and use tax on its sales of taxable items in Texas nor on its purchases of taxable items that are sold or transferred to its customers during a disaster response period.
Furthermore, an out-of-state entity will not be considered engaged in business in Texas if the entity’s physical presence in Texas is solely for performing disaster- or emergency-related work to repair or restore damaged critical infrastructure during a disaster response period. The out-of-state business entity is not required to register with the Texas Secretary of State or to file or pay any state or local taxes, including franchise tax, when performing disaster- or emergency-related work during a disaster response period.
In addition, the out-of-state entity will not owe use tax on equipment brought into Texas used only by the entity to perform disaster- or emergency-related work to repair or restore damaged critical infrastructure during the disaster response period, and removed from Texas by the entity following the disaster response period. The out-of-state entity will owe sales tax on its purchases of taxable items for its own use.
See Chapter 112 of the Texas Business and Commerce Code for further details.
Like Texas, Florida statutes contain relief provisions for out-of-state entities providing disaster related services in the state during a disaster-response period.
Specifically, Florida statutes provide that an out-of-state business that is conducting operations within Florida during a disaster-response period solely for purposes of performing emergency-related work or pursuant to a mutual aid agreement is not considered to have established a level of presence that would require that business to register, file, and remit state or local taxes or fees or require that business to be subject to any registration, licensing, or filing requirements in Florida.?For purposes of any state or local tax on or measured, in whole or in part, by net or gross income or receipts, the activity of the out-of-state business conducted in this state during the disaster-response period is disregarded with respect to any filing requirements for such tax, including the filing required for a consolidated group of which the out-of-state business may be a part.
See Chapter 213 of the Florida Statutes for further details.
Withum is currently working with clients entering Texas and Florida to provide badly needed assistance with rebuilding communities after these catastrophic events. We are well positioned to assist businesses with any registration and tax compliance requirements to facilitate these efforts.
|Benjamin Davey, CPA, Supervisor
T (732) 759-6829
|Paul Helderman, CPA, MST, Partner
T (973) 898-9494