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Colorado Taxpayer Refunds Fall Victim to Pandemic Economy (2)

May 12, 2020, 6:54 PMUpdated: May 12, 2020, 10:22 PM

Coloradans won’t get their expected constitutionally mandated tax refunds, after the economy faltered this spring. The new House stimulus bill is setting up a fight over SALT deduction cap. Indiana sports betting plummeted as events were canceled, and New York state’s April sales tax revenue plunged. Here’s the latest on shifting state tax guidelines, deadlines, and policy to deal with the coronavirus pandemic. For Monday’s coverage click here. Here’s a state-by-state roadmap.

The economic impact of the pandemic has blown a $3.3 billion hole in Colorado’s budget, wiping out refunds under the Taxpayer Bill of Rights (TABOR) for the foreseeable future, according to projections released Tuesday by economists in the governor’s office and the state General Assembly.

First, a recap: Voters in 1992 amended TABOR into the state’s constitution, limiting annual state and local government revenue growth to the rate of inflation plus population change and requiring voter approval for any tax increases. In fiscal year 2018-19 state revenue exceeded the TABOR cap by $428.3 million, which was refunded to taxpayers primarily through property tax exemptions and a temporary income tax rate reduction for 2019 taxes on returns filed in 2020, according to an updated Economic & Revenue Forecast issued Tuesday by the Colorado Legislative Council.

In December 2019, when the state and national economies were humming along, the council projected a TABOR revenue excess of $304.3 million for FY 19-20, to be refunded in FY 20-21. December projections for the FY 20-21 budget, which lawmakers hadn’t finished at the time they called a Covid-19 hiatus in mid-March, said the state would have $832.5 million more to spend or save in the General Fund than in FY 19-20, fueling yet another TABOR refund in FY 21-22.

That’s all gone now. The council’s forecast, and a similarly bleak one issued by the Governor’s Office of State Planning and Budgeting, said revenue subject to TABOR is expected to fall below the cap by $3.3 billion, a 25.3% shortfall in revenue. The amount doesn’t account for any additional shortfall resulting from the cost of inflation or caseload growth. Colorado will have an estimated $895.8 million General Fund deficit at the end of FY 2019-20, a reduction of $900.1 million than what was projected in the March forecast. The state will have $2.42 billion less in FY 2020-21 than anticipated in March.

“Today’s budget forecast is stark,” Rep. Julie McCluskie (D), a member of the Joint Budget Committee, said. “We are going to work as hard as we can to deliver a budget that eases the pain of these cuts, supports our recovery and helps Coloradans regain their footing through this crisis.”

Legislators Squabble Over SALT Cap

House Democrats proposed a $3 trillion virus relief bill Tuesday that includes some political priorities for Democrats from before the pandemic.

The bill (H.R. 6800) would suspend the cap on deductions for state and local tax, or SALT, for two years. The 2017 tax law imposed a $10,000 cap on those tax breaks, which Democrats, particularly those from high-tax New York and New Jersey, have been seeking to repeal since the law passed. Republicans have resisted raising the cap, saying that would only help the wealthy.

The new bill would also provide almost $1 trillion in aid for state and local governments as well as $1,200 cash payments to individuals and $1,200 for dependent children—up to $6,000 per household. It also would extend a $600 weekly increase to unemployment insurance into next January.

But the rollback of the SALT deduction cap is a nonstarter in the Senate, a spokesman for the Senate Finance Committee chairman said. The House Democrats’ bill is “a partisan, left wing wish list unrelated to the ongoing public health or economic crisis that is DOA in the Senate,” Michael Zona, communications director for Sen. Charles Grassley (R-Iowa), said.

Gov. Andrew Cuomo (D) of New York, speaking at his daily briefing, criticized the Republican stance, calling the cap “a theft by Washington to increase taxes on certain states. New York is one of them. Massachusetts is one. California is one. And it hurt homeowners, because you can’t deduct your state and local taxes anymore,” he said.

“It was punitive, it was political, it was wrong,” Cuomo said. “You want to help taxpayers? You want to help homeowners? You want to help the places that were hit by Covid? Repeal SALT, and that’s what should be done in this bill.”

Multistate Tax Commission to Go Virtual

The MTC has decided to hold its 2020 annual meeting by phone and webcast in lieu of in-person meetings July 27-30 in Little Rock. Dates and times for committee meetings have yet to be set, but will approximate the previously scheduled agenda for in-person meetings, the committee said Tuesday.

The MTC Executive Committee approved a bylaw change for the commission to consider prior to the meeting to allow it to be held virtually. MTC Executive Director Greg Matson said Little Rock will host the annual meeting in 2022. The 2021 meeting is scheduled to be held in Anchorage.

Table Tennis Anyone? Pandemic Paddles Indiana Sports Betting

With no sports to bet on beyond the NFL draft, Indiana sportsbook collections plunged last month, making April the industry’s worst month ever.

Sportsbooks collected just $26.3 million, as the April handle dropped almost 65% from March’s $74 million and a record $185 million in February, according to estimates from PlayIndiana. The handle is the total wagered by bettors, while revenue, for the sportsbooks, is the total retained from the amount wagered.

The April handle yielded just $148,189 in tax revenue for the state. Online and retail sports books were projected to make $190 million in bets, but without spring basketball and baseball, most of the betting was on the NFL draft, and more obscure events like ping-pong and Belarusian soccer.

Indiana can ill-afford the loss of the revenue, as it struggles with the budget-busting combination of falling tax receipts and demands for increased pandemic-related spending.

The state legalized sports betting in 2019, imposing a 9.5% levy on revenue. It didn’t legalize online poker or other internet casino gaming.

“The legacy of this shutdown for the market could be in the way it has stunted its growth,” said Jessica Welman, analyst for PlayIndiana.com. “From lost revenue to less competition, the effects of this unprecedented shutdown will be felt well after sports resume.”

New York Sales Tax Collections Plummet

New York state’s local sales tax collections dropped 24.4% in April compared with the same month in 2019, State Comptroller Thomas P. DiNapoli said Tuesday.

The drop hit every county and translates to $327 million less in collections for the month, he said. New York City sales tax collections declined by $141.8 million, or 23.1%. He said it wasn’t yet clear whether growing reliance on online shopping has offset some of the decline.

“The coronavirus has hurt household finances, and the April sales tax figures show how deep it is cutting into municipal finances,” DiNapoli said.

Made with Flourish

—With assistance from Laura Mahoney in Sacramento and Keshia Clukey in Albany, N.Y.

(Adds MTC annual meeting announcement. A previous update added the item on Congress's SALT conflict.)

To contact the reporters on this story: Sam McQuillan in Washington at smcquillan@bloomberglaw.com; Tripp Baltz in Denver at abaltz@bloomberglaw.com

To contact the editors responsible for this story: Jeff Harrington at jharrington@bloombergtax.com; David Jolly at djolly@bloombergtax.com

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