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Texas Property Owners Won’t Get Tax Exemptions for Pandemic (4)

April 15, 2020, 4:47 PMUpdated: April 15, 2020, 10:05 PM

Texas property owners can’t claim tax exemptions for damage caused by the pandemic. Big drops in retail sales will add to the fiscal pressure on state finances. Pennsylvania announced more relief measures, while New York City will take a big financial hit over the next two years, a city agency warned. Here’s the latest on shifting state tax guidelines, deadlines, and policy to deal with the coronavirus pandemic. For Tuesday’s coverage click here. Here’s a state-by-state roadmap.

Texas property owners hurt by the coronavirus pandemic are not eligible for a temporary state tax exemption created for disasters, according to state Attorney General Ken Paxton.

“A court would likely conclude that the Legislature intended to limit the temporary tax exemption to apply to property physically harmed as a result of a declared disaster,” Paxton wrote in a letter dated April 13. “Thus, purely economic, non-physical damage to property caused by the Covid-19 disaster is not eligible for the temporary tax exemption provided by section 11.35 of the Tax Code,” the letter concluded.

The response follows a request by state Sen. Paul Bettencourt (R) for guidance on the section of code approved by state legislators in 2019 in response to property damage caused by Hurricane Harvey in 2017. The section creates a temporary tax exemption for qualified property damaged by a disaster as declared by the governor. Gov. Greg Abbott (R) declared a state of a disaster March 13 due to Covid-19.

Illinois Governor Paints Dire Revenue Picture

Illinois is staring at a $6.2 billion shortfall during fiscal year 2021 due to massive revenue losses linked to the Covid-19 pandemic, Gov. J.B. Pritzker (D) announced Wednesday.

Pritzker presented a revised budget estimate reflecting losses across all major revenue programs. The Governor’s Office of Management and Budget projects a drop of $1.34 billion, or 6.9%, in individual income tax revenues for the current year, and a drop of $299 million, or 12%, from the corporate income tax. Sales tax revenues are projected to decline $737 million, or 8.4%. The budget office projected an additional $4.6 billion in revenue losses across multiple tax programs for fiscal year 2021.

While he noted the revenue picture was fluid and could be bolstered by federal support, Pritzker projected a $6.2 billion shortfall for the coming fiscal year. That number could expand to $7.4 billion if voters fail to approve a plan for a constitutional amendment tossing the state’s flat tax and replacing it with a graduated income tax scheme—a key feature of Pritzker’s long-term plan for restoring the state’s fiscal health.

“We will need to make extraordinarily difficult decisions on top of the difficult decisions we’ve already made, but together with the state legislature we will make them and we will do so with an unswerving dedication to fairness,” Pritzker said in a statement.

Wisconsin Conforms (Mostly)

Wisconsin moved swiftly Wednesday on omnibus legislation (A.B. 1038) that conforms the state’s tax code with several features of the federal coronavirus response law.

The bill, which Gov. Tony Evers (D) signed soon after it passed the Senate, exempts certain retirement account distributions from tax, permits deductions for certain charitable contributions, permits loan forgiveness on a tax-free basis under the federal small business loan program, and excludes from income student loan payments made by employers to qualified employees.

However, the bill did not address a provision in the stimulus that temporarily relaxes the business interest expense deduction limit under tax code Section 163(j) of the 2017 tax law.

Michael Bologna has more.

County Finances are Faltering

The revenue of municipalities is plummeting, affecting their ability to provide public health and other critical services, an economist with the National Association of Counties said Wednesday.

“Sales taxes are taking a big hit, and some counties rely up to 90% on them for funding services,” Teryn Zmuda, chief economist for NACO, said in a media call. “Fifty-three billion is on the line for county sales taxes,” she said. “When property and local income taxes are included, the amount vulnerable to loss is as high as $255 billion. Revenues are tightening up.”

Westchester County, a suburban area north of New York City with about one million residents, is facing revenue losses of $90 million to $160 million, County Executive George Latimer said during the call. Its revenues are split roughly 50-50 between sales and property taxes, but the biggest losses—$60 million to $125 million—are attributable to sales taxes as hotels and bus lines are shut down across the county.

“There’s no question we need the federal government to step in to underpin the realities of what we provide,” he said. Without assistance, the county could face “a catastrophic loss of services across-the-board. The pandemic has devastated our region, and we’re going to need the federal government to be there.”

Virginia Governor: No Plans to Shift Deadlines

Virginia doesn’t plan to further extend its individual income tax filing and payment deadlines, Gov. Ralph Northam (D) said Wednesday.

The state’s normal income tax filing deadline is May 1, but officials previously said penalties wouldn’t be charged if payments were made by June 1. Legislative action would be needed to lift interest on late payments. Income tax filing deadlines, including the May 1 individual income tax filing due date, are unchanged—though Virginia offers automatic six-month extensions.

Northam told a press conference there were no plans to provide additional time for individual income tax filings, even though the federal government has extended its deadline by three months, to July 15.

The state fiscal year ends on June 30, and “we need to continue to keep our essential services open,” Northam said, adding: “Unlike the national level, we can’t print money here in Virginia and so we need to balance our budget.”

N.J. GOP Lawmaker Pushes Sales Tax Delay

New Jersey businesses would get a 45-day extension to remit sales tax they’ve collected to the state, under a bill (A3937) proposed by a Republican lawmaker.

“Grant and loan programs offered by the state can’t keep up the pace with what is really needed,” Assemblyman Ron Dancer (R) said Wednesday. “Allowing businesses to keep what sales tax they collect for a month and a half doesn’t cost the state anything and can help businesses get through these unprecedented times.”

Gov. Phil Murphy (D) signed bipartisan legislation (S2338/A3918) late Tuesday extending the state’s income tax deadline to July 15, but New Jersey hasn’t followed New York in providing more time for sales tax payments.

The state has not yet seen the hit to tax revenue it anticipates from the health emergency, the state Treasury Department said Wednesday. March revenue was up 3.6% from the same month a year ago, fueling a 6.2% year-to-year first-quarter increase. The Covid-19 impact is likely to start materializing in April data, as the March numbers “largely reflect February economic behavior, which was prior to the onset of many social and commercial restrictions designed to help mitigate the spread of coronavirus,” the department said.

More Pennsylvania Relief

Pennsylvania is relaxing tax payment schedules and suspending enforcement actions until July 15, state officials said Wednesday.

Relief measures include boosting customer service, providing flexible terms on payment plans, broadening audit penalty relief, and continued tax credit and incentive programs.

“While people focus on their health and keeping themselves and their families safe during the pandemic, our goal is to ease the burden for our customers and help everyone move forward,” said Dan Hassell, Pennsylvania revenue secretary.

The state revenue department is advising taxpayers seeking assistance to submit questions electronically to its online service center, which also includes tax-related questions and answers.

Retail Weakness Will Weigh on Ailing States

Sharp declines in retail sales announced Wednesday will have a significant impact on state budgets, particularly in the 15 states that derive a majority of their general fund revenue from the sales tax.

The Commerce Department reported sales plummeted 8.7% in March from February—the largest drop since the department began tracking such data. The department attributed the steep decline to shelter-in-place orders and other business restrictions associated with the health crisis, which have caused many businesses to either cease or limit operations.

States derive roughly one-third of their revenue from general sales taxes, said Mark Robyn, an analyst with the Pew Charitable Trusts. He said the pain would be particularly acute in a handful of the 45 sales-tax states, which capture the majority of their income from that source, including Florida, Nevada, South Dakota, Tennessee, Texas, and Washington.

“Today’s drop in retail spending illustrates one more way the pandemic poses a new challenge for state leaders attempting to stabilize their budgets,” Robyn said.

New York City Braces for a Fiscal Beating

The economic impact of the pandemic will cost New York City $9.7 billion in tax revenue through mid-2021 and nearly $14 billion over two years, a city fiscal monitoring agency said Wednesday.

The Independent Budget Office based its preliminary forecast on the assumption that the city will lose 475,000 jobs in the next year, while acknowledging “great uncertainty” about the depth and duration of the expected recession. That would set the stage for a tax revenue shortfall from July 2020 to July 2022 that is “almost certainly greater than any two-year period” since the city’s 1970s fiscal crisis ended, the IBO said.

Sales tax showed the worst expected revenue shortfall ($5.7 billion through July 2022), projected to drop 13.1% in fiscal 2020, 36.4% in fiscal 2021, and 16% in fiscal 2022. Next was personal income tax, expected to fall by $4.2 billion in that period. Hotel occupancy taxes are projected to plummet 82% in fiscal 2021. Property tax collections, the largest single source of the city’s tax revenue, would fall only slightly through July 2022 due to valuation lags in the system, but long-term effects on assessments would likely show up in later years.

Showdown in Oklahoma

Oklahoma House and Senate leaders have asked the state Supreme Court to call a meeting of the state body charged with officially declaring a revenue failure, in a challenge to Gov. Kevin Stitt (R).

The petition filed Tuesday asks the high court to compel the Oklahoma Board of Equalization—chaired by the governor—to meet and declare a revenue failure. The state is facing an estimated $416 million budget hole brought about by the combined impact of the health crisis and low oil prices.

Lawmakers signed off on a trio of budget stabilization bills this month to head off state agency budget cuts for the 2020 fiscal year, which ends June 30. Stitt signed two of the bills, allowing the state to tap $201.6 million of the $503.9 million from available state reserves. But he postponed a scheduled April 6 Board of Equalization meeting, citing a “technical issue” with the bills, leaving the revenue failure declaration in limbo.

An additional $302.3 million in funds appropriated through a third bill (SB 199) to relieve the budget shortfall cannot be accessed until the board meets to determine a revenue failure. If left unaddressed, it could trigger cuts to state agency budgets. That bill became law April 13 without Stitt’s signature, according to the Legislature’s website.

The governor and his senior staff are working on the state’s response to the pandemic and haven’t been able to fully review the petition, spokeswoman Baylee Lakey said. Oklahoma lawmakers don’t have any comment beyond the petition, Senate spokesman Aaron Cooper said.

—With assistance from Siri Bulusu in Washington, D.C., Andrew M. Ballard in Raleigh, N.C., and Tripp Baltz in Denver.

(Adds Illinois.)

To contact the reporters on this story: Michael J. Bologna in Chicago at mbologna@bloomberglaw.com; Paul Stinson in Austin, Texas at pstinson@bloomberglaw.com; John Herzfeld in New York at jherzfeld@bloomberglaw.com

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