California lawmakers are addressing an unexpected challenge facing wildfire survivors: taxation of settlement payments. Assembly Bill 429, co-authored by Assemblymembers Heather Hadwick and Tom Lackey, proposes waiving state income taxes on settlements from several recent fires, including the Dixie Fire, Mill Fire, and Park Fire. The legislation aims to prevent victims from incurring additional financial burdens after losing their homes.
An explanation reveals that the state’s tax system counts litigation settlements as taxable income. As a result, payments from utility companies or other responsible parties are taxed by the Franchise Tax Board. Previous tax waivers for settlements, such as those for the PG&E Fire Victim Trust, have set a precedent in the state, allowing communities to rebuild without additional financial strain.
However, the path to tax relief is not straightforward. Last year, Governor Gavin Newsom vetoed two bills that had passed with unanimous legislative support, which would have alleviated taxes on settlements for the Dixie, Mill, and Bobcat fires. In his veto message, he stated: “I wholeheartedly support the intent” of the bills but argued for their inclusion in the state budget amidst a challenging fiscal environment.
Newsom’s proposed budget in January provides tax relief for wildfire settlements, but only from 2025 through 2029. This excludes communities like Greenville and Weed, where survivors are still rebuilding. Critics assert that these towns deserve equal support.
The issue draws attention as fires continue across the state, including notable devastation in Southern California. While high-profile losses in affluent areas attract attention, representatives stress the importance of addressing the needs of smaller, less-publicized communities in Northern California.
