Detailed Multistate Development
The beginning of May marks about six weeks since many states and cities began enforcing stay at home orders. During this time, many states and localities have issued guidance on extensions of time to file returns and pay various types of taxes. The issuance of guidance has slowed a bit, likely due to the fact that the 4/15 income tax filing and payment deadlines have come and gone. However, some states have continued to refine their guidance in this area. For example, this past week, the Oregon Department of Revenue issued revised guidance on the initial estimated payments for its new Corporate Activity Tax (CAT) that are due April 30, 2020. While the due date has not changed, the Department has revised which companies must make estimated CAT payments. Under the revised rule, only companies that anticipate having $10,000 or more in annual CAT liability must make estimated payments. Previously, the threshold was companies anticipating over $5,000 or more in annual CAT liability. Further, the Department has Revenue won’t assess penalties for underestimated quarterly payments or for not making a quarterly payment if businesses don’t have the financial ability to make the estimated payment. Business must keep documentation showing their inability to make an estimated CAT payment. Some states have also issued guidance on other tax types, or other deadlines. For example, in California, Controller Betty Yee postponed the due date for unclaimed property holders to submit their reports and remittances for properties reported on 2019 Notice Reports from June 1, 2020, to August 15, 2020.
In addition to extensions of time to file and pay, in the past few weeks many states have addressed additional tax issues stemming from COVID-19, such as state conformity to the CARES Act and whether having telecommuting employees working at home will create nexus or cause loss of P.L. 86-272 protection for employers. This past week, the Hawaii Department of Taxation issued Tax Information Release No. 2020-02 in which the Department confirmed that CARES Act Economic impact payments and loan proceeds from Paycheck Protection Program (PPP) loans are not subject to Hawaii Income Tax. However, the Department noted that when the PPP loans are forgiven, the cancellation of indebtedness income will not be excluded from income for Hawaii income tax purposes absent state legislation. The Department of Taxation intends to recommend to the legislature that Hawaii conform to the federal treatment of PPP loan forgiveness.
Finally, state revenue collections and budget situations in light of COVID-19 are starting to become a bit clearer, as states and economic forecasters gain more data. Two organizations recently completed estimates of the revenue impact of the COVID-related plummeting of economic activity on state tax revenues. The Federation of Tax Administrators (FTA) estimates that the reduction in state sales tax, personal income, and corporate income tax receipts in the April – June quarter will total $150 billion from a traditional baseline for that quarter. The FTA model is built from data supplied by states on a monthly basis and looks at each source (e.g., withholding, estimated payments, and sales tax) separately. The $150 billion reduction comprises $83 billion in individual income tax, $24 billion in corporate income tax, and $38 billion in sales tax collections (or about 45 percent below the baseline for sales tax). FTA projects that about $60 billion of the combined income drop is due to a shift of payments to July with the extensions that have been granted, meaning the drop for the baseline for income taxes is about 25 percent over four months. The model also projects a $5.4 billion (30 percent) decline from the baseline for motor fuel receipts from April – July. In separate work, the Center on Budget and Policy Priorities projects that the revenue decline for all states will total $650 billion over FY 2020-2022. The yearly totals are $110 billion in 2020, $350 billion in FY 2021 and $190 billion in FY 2022. To help put things in perspective, the total ‘rainy day funds’ states had on hand at the end of FY 2019 was about $110 billion.
To read about recent state and local tax guidance on extensions in response to COVID-19, please click here and bookmark KPMG TaxNewsFlash-United States to stay current as more guidance is regularly released.
This Week's Developments