California Tax Agencies Shifting Back to Work in Covid’s Wake (1)

July 14, 2020, 7:24 PMUpdated: July 15, 2020, 6:56 PM

California’s tax agencies are gradually resuming business as usual in July and August after postponing filing deadlines and pausing audits, collections, and other activities in the early months of the coronavirus pandemic.

Agencies used a combination of executive orders from Gov. Gavin Newsom (D) and their own authority to offer relief to businesses and individuals struggling with the pandemic’s impact. Pandemic relief is still available, tax agencies say. But the end of extended deadlines and other orders means both individual and corporate taxpayers will have to adjust to making payments, filing paperwork and attending hearings again, even if some of the activity is online only.

“Things will transition back to a more steady state of business, although we’re emphasizing that everybody needs to keep in mind that it’s still a difficult time for a lot of taxpayers,” California Department of Tax and Fee Administration Director Nicolas Maduros told Bloomberg Tax.

Franchise Tax Board

California matched the federal decision to postpone the 2019 income tax filing from April 15 to July 15. After July 15, the Franchise Tax Board will resume its usual activities that were deferred, including sending out collection notices, using tax refunds to offset taxes owed and other state debts, requiring timely payments from taxpayers under installment agreements, and processing new requests for offers in compromise on undisputed tax liabilities.

The tax board has resumed its normal audit process with alternate methods of communication including email, audio and video conferencing, and secure online file transfers. The options have helped keep the agency current on its audit workload, Chris Smith, FTB spokesman, said.

Taxpayers “have been willing and receptive in using the various alternative methods of communications,” Smith told Bloomberg Tax.

July 15 also marks the end of an extended deadline to file a claim for refund or notice to protest an income tax assessment with the tax board under a notice the tax board issued March 30.

Sales Taxes

One of the state’s sales and use tax department’s major relief options expires July 31 while another is just getting started.

Businesses that owe California less than $1 million in quarterly sales and use tax have until July 31 to file returns and pay tax for the first quarter of 2020 under an executive order from Gov. Gavin Newsom (D). The order applies to 99.5% of all sales taxpayers, extending their deadline for first quarter payments from April 30 as well as their deadlines for second quarter prepayments due in May and June.

Sales and use tax receipts of $12.9 billion since April 1 are down more than 19% compared to the same time last year, according to the most recent data available on the department’s website. Department officials expect that gap to close somewhat after the July 31 deadline.

Starting in August, businesses with less than $5 million in annual taxable sales can apply for a relief program that gives them one year to remit up to $50,000 in sales tax collections without interest or penalties. The businesses must file returns due by July 31 and be current on existing payment plans with the department.

The department will launch online applications for the relief program soon. Businesses interested in applying can fill out an online form to be notified when the system is live.

The sales tax department is also resuming normal operations in phases in late July and August on existing installment agreement payments and applications for new ones, enforcement of liens and levies, and audits.

“We are starting the audits with calls to customers to schedule appointments, check in to see how they are faring during this time, and assess how we can assist them at this point,” department spokeswoman Stacie Spector told Bloomberg Tax.

Tax Appeals

California’s Office of Tax Appeals is transitioning back to normal deadlines for taxpayers that appeal their assessments from the sales tax or income tax agencies.

The office will publish more than 100 opinions the first week of August that are final but not yet released so that taxpayers have extra time to file a petition for a rehearing, Myriam Bouaziz, deputy director of legislative and external affairs, told Bloomberg Tax. No rehearing requests have been filed yet for most of those opinions, she said.

Taxpayers have until July 15 to file an appeal or petition for rehearing on income tax matters from the tax board if their deadlines fell between March 12 and July 15. Those with sales tax matters got automatic 60-day extensions to file appeals or rehearing petitions through July 30.

Deadlines for correspondence such as briefings that fell between March 1 and June 30 were automatically extended 60 days for both income tax and sales tax appeals.

The appeals office is offering virtual hearings of cases before panels of administrative law judges and is considering requests for further deadline extensions from taxpayers who are affected by the pandemic, Bouaziz said.

Each of the three state tax agencies have more information and updates about Covid-19 relief on their websites: Franchise Tax Board, Department of Tax and Fee Administration, and Office of Tax Appeals.

(Adds information about offsetting tax refund payments in fourth paragraph for a story published July 14. An earlier version was corrected to clarify deadlines for the Office of Tax Appeals.)

To contact the reporter on this story: Laura Mahoney in Sacramento, Calif. at lmahoney@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; Yuri Nagano at ynagano@bloombergtax.com

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