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Houston Bracing as Virus Knocks a Hole in City’s Finances (2)

April 29, 2020, 6:09 PM; Updated: April 29, 2020, 10:42 PM

States could choose to make permanent their temporary crisis arrangements on the tax treatment of teleworkers. Utah repeals a sales and use tax exemption on fuel for locomotives. And we introduce an interactive map tracking income tax deadlines. 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.

The City of Houston is facing a $24 million budget hole for the remainder of the fiscal year that ends June 30, after the historic plunge in oil prices and the economic impact of the pandemic clobbered its financial outlook.

The shortfall reflects estimates that sales tax receipts will now fall $23 million below expectations. Max Moll, spokesman for the Houston Controller’s office, said Wednesday that the numbers amounted to the city’s “best estimation,” adding it was “likely” those figures could see further revisions considering that Houston hasn’t “seen the full impact of Covid-19 on sales tax revenues yet.”

Economists at the Federal Reserve Bank of Dallas noted Wednesday that Houston’s economy was ailing from efforts to contain the pandemic and said “Employment contracted, the business-cycle index slowed, leading indicators were broadly negative, and the unemployment rate rose sharply” last month. “Taken together,” the Fed added, “the data paint a sobering picture of further declines ahead.”

Houston’s top financial officials laid out the lowered revenue estimates in a monthly financial report presented to city leaders in a Tuesday meeting.

“We should know more when we receive March’s sales tax revenue numbers at the end of next week,” Moll said in an email to Bloomberg Tax.

The revised revenue estimates follow the cancellation of a slate of big-ticket events by city including global energy conferences and Rodeo Houston—a 20-day event that attracted 2.5 million visitors in 2019.

Mary Benton, a spokeswoman for Houston Mayor Sylvester Turner, confirmed Houston budget analysts are expecting a loss of more than $100 million in revenue for city government, with sales tax revenue expected to plummet by 30% for April. Turner has already warned residents that the revenue shortfall will impact the proposed budget for Fiscal Year 2021, resulting in employee furloughs, deferred payments, and “other difficult choices for the city,” she said.

City leaders also learned this week they would be short an additional $3.6 million from the public health crisis—including a $1.6 million drop in city court fines and forfeits due to “due to lower than anticipated moving violation receipts” or traffic tickets.

Temporary Telework Arrangements Could Become Permanent

Will some of the temporary tax policy changes states are making in response to the public health crisis become permanent?

The question came up Tuesday in a teleconference meeting of the Strategic Planning Committee of the Multistate Tax Commission. Participants cited as a possible example the accommodations that several states have made for the employees working at home because of the virus. New Jersey, Mississippi, Pennsylvania, and Washington, D.C., to name a few, have said teleworkers won’t trigger corporate income tax liability for multistate companies.

The issue is a thorny one, because employers normally are required to withhold tax for employees based on where they work, or possibly where they live. With many employees now off-base and teleworking from out-of-state locations, they could be triggering nexus—the conditions for taxabilty—in another state. That means states have to offer guidance. Last week, for example, Massachusetts said resident employees working in the state temporarily because of the crisis, and incurring a tax liability in another state from that state’s sourcing rules, were “eligible for a credit for taxes paid to that state.”

But for how long will those easier policies remain in place?

“At some point states are going to need to sit down and give serious thought to that,” Greg Matson, MTC executive director, said Wednesday in a phone interview. “Maybe things stay, and maybe they don’t. It’ll be interesting to see.”

Check Out Our New Interactive State Map

Have a look at our new multimedia offering, an interactive map showing income tax filing deadlines for various states. In the future, look for it on the bottom of our Daily Tax Report: State page.

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Iowa Extends Property Tax Deadline

Gov. Kim Reynolds (R) has extended Iowa’s property tax filing deadline by a month in response to the public health emergency.

Reynolds confirmed Wednesday that her emergency proclamation shifts the deadline to May 27 for taxes due on April 1 and May 1. The proclamation temporarily suspends late interest until May 28, when any unpaid property taxes will be assessed the full late interest for April and May at a rate of 1.5% of the unpaid balance.

O’Neal Looks for Aid to Small Cities

House Ways and Means Chairman Richard Neal (D-Mass.) wants to get rid of a provision in the coronavirus stimulus law that gives direct financial assistance only to municipalities with populations over 500,000.

“I don’t think it makes any sense,” Neal told a group of mayors Wednesday in a Facebook Live chat.

Steve Benjamin, mayor of Columbia, S.C., told Neal in the chat that local governments should get a tax credit for paid leave reimbursement, just as private employers are getting. “Only private employers will get the benefit of the tax credit,” he said.

The Family First and Coronavirus Relief Act (Public Law 116-136), which passed Congress in March, doesn’t provide refundable tax credits for paid leave to state and local governments but does so for private employers.

Utah Repeals Sales and Use Tax Exemption for Railways

Gov. Gary Herbert (R) has signed a bill repealing Utah’s sales and use tax exemption for fuel sold to rail carriers for use in locomotive engines.

The bill (H.B. 4002), which will take effect Jan. 1, 2021, also creates a Rail Transportation Restricted Account. It will increase sales and use taxes by an estimated $1.53 million in fiscal year 2021 and then about $3.66 million subsequently, depositing that money into the new account.

The measure was approved by the House on a 63-10 vote and by the Senate 23-6 during a special session April 23 of the Utah Legislature convened virtually because of the pandemic.

—With assistance from Michael J. Bologna in Chicago.

(Adding Houston finances from paragraph 2 and Iowa deadline extension from paragraph 16. A previous revision added comments from House Ways and Means Chairman Richard Neal (D-Mass.) on financial assistance to municipalities. )

To contact the reporters on this story: Paul Stinson in Austin, Texas at pstinson@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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