Oregon wildfire victims ask lawmakers to shield legal settlements from state taxation

By Ted Sickinger| The Oregonian/OregonLive

Victims of the 2020 Labor Day wildfires asked Oregon lawmakers last week to pass a bill that would exempt any legal settlements they receive from state taxation, saying it’s unconscionable for the government to profit off their tragedy and take a portion of settlements that may not be adequate to cover their losses.

Anne Dorsey, a victim of the Archie Creek fire, testified remotely Friday at a hearing of the Legislature’s Joint Committee on Tax Expenditures. She told lawmakers her small ranch on the North Umpqua was devastated in the fire and she is currently working as a school teacher in retirement to make ends meet. She said she had also been forced to move into a rental property that was supposed to supplement her retirement budget.

“I was lucky. Most of my neighbors and other fire victims were left homeless and didn’t have a rental to go to,” she said. “They need every penny of potential settlement to rebuild their lives. It is egregious for the government to benefit from the fire victims’ losses by taxing their entire potential settlements.”

About 20 additional fire victims filed written testimony in support of House Bill 3523. The legislation, sponsored by Rep. Christine Goodwin, R-Canyonville, would allow fire victims to subtract any settlement they receive from a “civil action arising from wildfire” from their taxable income, as long as they haven’t already done so on their federal return. It would apply to any amounts received after Jan. 1, 2020 and before Jan. 1, 2026.

The legislation may soon become deeply significant for wildfire victims.

A class action suit filed against PacifiCorp on behalf of thousands of victims of four Labor Day 2020 fires is set to go to trial in Multnomah County Circuit Court on April 24. Meanwhile, a Douglas County judge has set a tentative trial date in November for a consolidated lawsuit filed against PacifiCorp by more than 200 families and seven timber companies who were victims of the Archie Creek fire along the North Umpqua River.

The suits claim PacifiCorp’s power lines were responsible for five of the six conflagrations that ignited in Oregon amid a historic Labor Day windstorm.

It’s unclear whether either of the two scheduled trials will go forward or PacifiCorp will choose to settle victims claims in mediation beforehand. The utility has already reached a confidential settlement with two families in the Archie Creek fire, days before their trial was set to start last November. One of the victims’ lawyers, Jeff Mornarich, told members of the Legislature’s Joint Committee on Tax Expenditures at Friday’s hearing that he received 20 written settlement offers last week for other victims of the Archie Creek fire.

PacifiCorp has previously told The Oregonian/OregonLive that the utility believes it acted reasonably during the historic windstorm and “our hearts go out to all those affected” by the fires.

“We recognize that no two victims are alike in their experiences and their losses, and we are seeking to recognize this through reasonable resolution, where appropriate,” the utility added.

Regardless of how and when those settlements are reached, the entire amount victims receive, — excluding damages for physical injuries — is taxable as gross income by the state and federal governments, Mornarich said. He told committee members that includes the portion that goes to their attorneys, typically between 25% and 40%. And due to a change in federal tax law during the Trump administration, those attorneys’ fees are not always deductible for victims that aren’t filing business returns.

That means victims, many of whom are still reeling financially as they look to rebuild and get their lives back on track, could end up with as little as 25% of the gross amount they are awarded by a jury or in mediation. Meanwhile, attorneys are also required to pay taxes on the settlement fees, so those fees are taxed twice.

Lawmakers at Friday’s hearing said they were sympathetic to the victims’ plight and sounded predisposed to support the bill.

Rep. Pam Marsh, D-Medford, said she doubted any of her colleagues on the committee would oppose the kind of policy change envisioned by the bill. But she questioned whether other kinds of civil settlements would be inadvertently swept up by the legislation.

No one had firm answers Friday, and Sen. Mark Meek, D-Gladstone, co-chair of the committee, said the bill probably needed to be vetted by Legislative Counsel.

Sen. Jeff Golden, D-Ashland, said he was no tax expert, “but I can’t offhand think of another situation that would involve double taxation this egregious.”

Bills have been introduced in Congress to establish a tax deduction for attorneys fees paid out of wildfire settlements and to exclude settlement fees from reportable gross income. California, meanwhile, has already passed legislation to shield certain wildfire victims from state taxation.

Mornarich urged Oregon lawmakers to do the same.

“Losing every single thing you have in a wildfire, especially a wildfire that you did not cause, is a knockout punch that leaves someone flat on the ground,” he said. “Requiring that person to then turn around and pay tax on the settlement they receive is like walking up to that person and kicking them while they’re on the ground.”

– Ted Sickinger; tsickinger@oregonian.com; 503-221-8505; @tedsickinger

SOURCE: https://www.oregonlive.com/politics/2023/04/oregon-wildfire-victims-ask-lawmakers-to-shield-legal-settlements-from-state-taxation.html

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