Bill would waive state tax on Huntington Beach oil spill settlements

To tax or not to tax?

That’s the basic question state and federal authorities ask about money paid to victims of the 2021 oil spill off Huntington Beach. And, for now, their answer is always the same: tax.

An eclectic class of oil spill victims – fishermen, tourism-related businesses and beach-area homeowners – recently has been receiving various sized slices of a $95 million settlement that was set up over the past two years to pay for spill-related damages. In addition to the checks, which compensate for everything from the hassle of living with powerful odors to the financial hit of several months of interrupted businesses and lost income, comes a slip of paper – a 1099 tax form.

“Seeing that form was definitely a buzzkill,” said Eric Johnston, who received a pair of checks last fall, worth about $1,300 combined, because he owns a home near the corner of Warner Avenue and Pacific Coast Highway in Huntington Beach, close to where oil made landfall and a strong stench lingered for weeks in the fall of 2021.

“For us, it was inconvenient,” Johnston said. “But other people lost a lot more. This is really unfair for them.

“The state treats this like we won something in a contest or a game show,” he added. “That’s not what this is.”

Soon after receiving the checks, and the 1099, Johnston reached out to state and federal lawmakers to tell them that, in his view, the tax is unfair. He also posted about it on X, the platform formerly known as Twitter. And one of those messages caught the eye of Johnston’s state senator, Janet Nguyen.

This week, Nguyen filed SB 1102, a proposal to waive state taxes related to compensation from the Huntington Beach spill.

“What they’re getting isn’t income,” Nguyen, a Republican from Huntington Beach, said Wednesday, Feb. 14. “It’s compensation for losses, which is different.”

Nguyen said the state has approved similar waivers on compensation-related taxes from two specific wildfires caused by power companies. After those fires, victims who suffered lost or damaged homes eventually were named as plaintiffs in a class action that ultimately led to partial compensation.

The pattern is similar for people like Johnston and several hundred others who live in Nguyen’s district.

“My bill is very specific,” Nguyen said. “We’re talking about an event that already occurred, and it’s clear why people are being compensated.”

Nguyen said she isn’t sure if other states have similar tax waivers for disaster victims. She also isn’t sure if anything like it is on the books, or in the works, to adjust disaster-related federal taxes.

She does believe the money isn’t something anybody is angling to get.

“People who are getting money are recovering from a disaster,” she added. “We should help them, not tax them.”

It’s unclear if Nguyen’s bill will gain traction and, if it does, when – or if – it’ll be signed by Gov. Gavin Newsom. So, for now, Johnston is preparing to pay his taxes.

“It’s a form I file anyway for my business,” he said. “But maybe I’ll get something back later. I don’t know.”

Source: Orange County Register