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Alabama Revenue Business - Oil Spill Information (Gulf of New Mexico waters)

Oil Spill Information (Gulf of New Mexico waters)

Frequently Asked Questions

  1. Will I be required to pay income tax on payments received from British Petroleum (BP) for damages sustained due to loss of income (Example: otel/Condominium (lost rental income), Shrimp Boat Operator (lost seafood income), or Gulf Coast retailer/restaurant (lost income due to lower tourism)? Yes, these payments are in lieu of income you would have received and under current law, are taxable and must be included on your Alabama income tax return.  The U.S. Congress or the Alabama Legislature would have to enact special relief in order for the payments not to be subject to tax.  If you are already paying estimated taxes on a quarterly basis, be sure to include the amount of the payments you receive from BP in the calculation of the amounts you need to pay each quarter.  If you don’t normally make estimated payments, you will have to file and pay quarterly estimated taxes for this income, unless taxes are withheld by BP from the payments you receive.
  2. Will I be required to pay lodgings tax, sales tax or any other type of transactional tax on payments received due to loss of income from British Petroleum (BP) as damages due to the Gulf oil spill? No, not unless a portion of the payment received is identified as being for sales tax, lodgings tax or any other transactional tax due the State of Alabama or the counties or municipalities thereof. The State of Alabama and the counties and municipalities will be compensated directly by British Petroleum (BP).
  3. Are wages earned offshore in the cleanup effort taxable to Alabama? Yes, employee wages earned within a three mile range of Alabama’s coastline are considered Alabama wages, and employers should withhold Alabama income taxes in the same manner as wages earned onshore.
  4. Will I be required to pay income tax on payments received from British Petroleum (BP) for damages sustained due to loss of property value from the Gulf oil spill? No, these payments will not be considered income for tax purposes.  However, you must reduce your basis in this property in the amount you receive.  Example: You purchased land for $100,000 in 2009.  Due to the Gulf oil spill, the estimated property value is now only $50,000.  BP gives you $20,000 for damages caused by the Gulf Oil Spill.  Your basis in this property is now $80,000.  If you sell this property in 2011 for $110,000, you will recognize a gain for Alabama tax purposes of $30,000 ($110,000-$80,000).
  5. When will reduced property values, as a result of the oil spill, be reflected in property tax notices? The 2010 property valuation notices recently mailed state property values as of October 1, 2009. The notices will not reflect any impact the oil spill might have on property values since the oil spill occurred after the October 1, 2009, tax lien date. Any impact that the BP oil spill may have on property values will not be reflected until valuation notices are mailed out in the summer of 2011. These will state values as of the October 1, 2010, tax valuation date, and will reflect any impact on values if measurable at that time.
  6. May I take a casualty loss on my tax return  for damages sustained due to the Gulf oil spill if I received payments from British Petroleum (BP) or my insurance company? No, you may not deduct losses due to damages sustained by the Gulf oil spill if you received payments from BP or your insurance company that was equal to or greater than the amount of estimated losses.  To the extent you received payments that were less than the losses you sustained, you may deduct the balance on your Alabama tax return as a casualty loss.  Example:  You sustained $50,000 of property damage from the Gulf oil spill and received $35,000 from BP.  The maximum amount of casualty loss you may claim is $15,000.

If you have additional questions regarding the effect of the Gulf oil spill on your Alabama taxes, please contact the Alabama Department of Revenue at: (251) 344-4737.

For more information on filing a damage claim with British Petroleum, please visit the Alabama Attorney General’s website at: http://oilspill.ago.alabama.gov/AGOOilSpillFAQ.htm.

IRS tax help and guidance information for Gulf oil spill victims may be found on the IRS website at: http://www.irs.gov/newsroom/article/0,,id=224887,00.html; or by calling 866-562-5227.