Fire Fee Update: IRS says Fire Fee payments not deductible

From the latest monthly newsletter by Senator George Runner (Ret.):

The last of the 2011-12 fire fee bills became due in mid-January. Payments are still arriving and 16,770 appeals are waiting to be reviewed by CAL FIRE, but it appears that the state will end up collecting about $70 million, far short of the total originally projected.

Several months ago, I inquired with the IRS about whether payments of the fire fee bill could be deducted on federal income tax returns in the same way that other property taxes may be deducted. On January 14, the IRS responded, issuing an opinion that the fire fee payments are not tax deductible because the fee is not a tax under California or federal law and because it is assessed only against specific property to provide a local benefit.

I disagree with the IRS opinion on both points; although it hasn’t yet been overturned by the courts, the fire fee is clearly a tax as defined by the State Constitution. Additionally, contrary to the IRS argument that the “fee” provides a specific local benefit, we know that the money collected is just being used to backfill CAL FIRE funding that was diverted back to the General Fund, providing no additional services to taxpayers.

The state is already gearing up to send out the 2012-13 bills, beginning as early as March 2013. And there’s still no date yet for when the court might hear the Howard Jarvis Taxpayers Association’s lawsuit.