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Daily Tax Report: State

Newsom Caught in the Middle of California Property Tax Fight (1)

April 3, 2020, 3:04 PMUpdated: April 3, 2020, 10:19 PM

California companies want the state to extend property tax deadlines, while Oklahoma will consider tapping its Rainy Day Fund. Colorado, meanwhile, is pushing out due dates for businesses to file and pay sales taxes. Here’s the latest on shifting state tax guidelines, deadlines, and policy to deal with the new coronavirus pandemic. For our Thursday coverage click here. Here’s a state-by-state roadmap.

Gov. Gavin Newsom (D) is caught between companies demanding that he extend the state’s property tax payment deadline to help property owners and beleaguered local authorities, who fear for their finances as the pandemic hits revenue.

County tax collectors can’t change the looming April 10 deadline and are inconsistently interpreting their authority to grant waivers from penalties and fees for late payments, leading business groups said Friday in a letter to Newsom. For example, they noted, some authorities are saying they can offer relief for economic reasons, and some only for reasons directly related to Covid-19, such as hospitalization. Others are saying they have no authority to waive penalties if a property owner needs the money to meet expenses such as meeting payroll.

“This means in the best case, relief will be inconsistently granted across the state, and at worst, available to almost no one,” the groups said, calling for the deadline to be extended to July 15.

The California Taxpayers Association and Howard Jarvis Taxpayers Association sent the letter, with California Chamber of Commerce, California Business Properties Association, Silicon Valley Leadership Group, and dozens of others signing on.

Newsom has said he was in discussions about a later deadline, but counties and local governments were opposed.

“This is not the state’s money, unlike a lot of other taxes that are collected,” Newsom said Thursday in a news briefing, adding: “I don’t want to overpromise in this space.”

State law requires owners to pay annual property tax in two installments, due Dec. 10 and April 10. A 10% penalty and other fees apply to late payments.

Pushing back the deadline would cut local funding during the crisis, and almost all local agencies rely on property tax for the majority of their funds, the California State Association of Counties, League of California Cities, and seven other groups representing local governments told Newsom in their own letter on March 21.

But the business groups said that property owners have already paid at least half of their annual tax bills in December, and more than half of homeowners use impound accounts to pay their property tax bill as part of their monthly mortgage payments, the letter said. A delayed payment deadline shouldn’t apply to the impounded payments, the groups said, noting concerns that the banks holding those accounts would benefit if they aren’t required to remit those payments to counties by April 10.

Applying for waivers would be burdensome for property owners and county tax collectors, the business groups said.

“None of this will be done by April 10, and taxpayers who choose to defer payment will do so with no certainty of the status of their request for a waiver until it is too late to do something about it before the 10% penalty attaches,” the business groups’ letter said.

Two legislators have urged county tax collectors to have one consistent message about generously granting relief from penalties. Assemblywoman Autumn Burke (D) and Assemblyman Phil Ting (D) plan to introduce emergency legislation to retroactively waive interest and penalties for homeowners, but the Legislature has recessed until at least April 13 to reduce risk during the pandemic.

Oklahoma to Address Revenue Gap

Oklahoma may soon move to tap its Rainy Day Fund.

Governor Kevin Stitt (R) said Friday that the state is expecting a $416 million revenue failure for the remainder of Fiscal Year 2020, which ends June 30. He called for a virtual meeting Monday of the state Board of Equalization to discuss having the Legislature tap into the state’s savings account; otherwise, the revenue failure would automatically result in a 6.2% budget cut for all state agencies, according to a release issued by the governor’s office.

Revenue failures occur when collection to the general revenue fund (GRF) falls below 95% of the certified estimate. They are declared by Oklahoma’s Office of Management and Enterprise Services, followed by mandatory appropriation reductions to end the shortfall and maintain a balanced budget.

The Legislature could prospectively tap up to $503 million of its available balance of $806 million to supplement the budget, according to the governor’s office. Oklahoma last declared a revenue failure in 2018, according to the Oklahoma Policy Institute, a Tulsa think tank.

Oklahoma lawmakers are expected Monday to return to the Capitol to address the revenue failure.

Colorado Easing Sales Tax Deadlines

Colorado Gov. Jared Polis (D) said Friday that the state is granting a 30-day extension for businesses to file and remit state sales taxes, in addition to local sales taxes in Colorado’s 272 state-collected tax jurisdictions.

The state will also waive all penalties and interests on those sales taxes, Polis said in a briefing. “That means state sales taxes owed April 20 don’t have to be paid until May 20, with no penalties and interest,” Polis said.

The measure is designed to provide relief for small businesses, especially those which are closed under Colorado’s “stay-at-home” order, Polis said.

More States on Board with Telework

Add Pennsylvania and Washington, D.C., to the list of tax jurisdictions adapting to the health crisis with rules that say telecommuters won’t change a company’s status with respect to corporate income taxes.

Having remote workers in another state can trigger nexus in that state for a company for purposes of corporate income taxes. Nexus is the legal basis by which a jurisdiction imposes a levy, with one such basis being physical presence. With so many employees now working from home, many companies have new teleworkers in states where they lacked a physical presence before the Covid-19 pandemic. That alone won’t create nexus, Pennsylvania and D.C. tax officials said April 1 in a Reed Smith LLP webinar.
New Jersey and Mississippi previously said they would treat telecommuters similarly—it won’t create nexus. Other states are expected to issue similar guidance soon, tax practitioners said.

D.C. Puts Relief for Small Retailers on the Table

The Washington, D.C., Legislature will consider a Covid-19 relief proposal to create a “small retailer tax credit” that would allow shops and restaurants to shrink their property tax burden by 10% of their annual rent payments, of up to $10,000.

Phil Mendelson, chairman of the D.C. Council, the district’s legislative branch, put the measure on the agenda for the April 7 meeting.

The bill also removes work-search requirements for unemployment insurance during a public health emergency. Independent contractors and the self-employed ineligible for unemployment insurance can qualify for the small retailer tax credit.

— With assistance from Sam McQuillan in Washington, D.C. and Paul Stinson in Austin, Texas.

(Adds California, Colorado, Oklahoma, D.C. tax credit.)

To contact the reporters on this story: Tripp Baltz in Denver at abaltz@bloomberglaw.com; Laura Mahoney in Sacramento, Calif. at lmahoney@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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