State finances had been in fair health going into the health crisis, a think tank’s analysis found, but the outlook now is dire. Here’s the latest on shifting state tax guidelines, deadlines, and policy to deal with the coronavirus pandemic. For Friday’s coverage click here. Here’s a state-by-state roadmap.
State tax collections fell 1.3% in March from the same month a year earlier, according to data collected by the Urban Institute, but the outlook for the coming months is poor.
Most states had been enjoying a healthy upswing until Covid-19 hit, with 43 reporting total tax growth during the first nine months of their fiscal years, the think tank found. (The fiscal year runs from July 1 to June 30 in 46 of the 50 U.S. states.)
Personal income taxes led the March decline, falling 4.8%. Sales tax revenue grew 2.1%, somewhat offsetting losses.
As the pandemic brought 2020’s steady economic growth to a halt, spending to combat the virus and economic dislocation has been rising, even as unforeseen revenue losses are hitting home, the report, by the institute’s State and Local Finance Initiative, said. As a result, “The picture for the remainder of the fiscal year is bleak.” A few states have already declared budget shortfalls for the current fiscal year and the upcoming one.
States stand to miss out on additional revenue with income tax deadlines pushed back to July 15, as April normally accounts for 13% to 15% of collections. They stand to lose even more as most businesses remain closed and consumer spending slides. Additionally, unemployment insurance claims have spiked to over 24 million in the last five weeks, and those numbers are expected to continue to rise.
With the economy “paralyzed,” the authors conclude, “Congress should step up and provide more direct aid to state and local governments.” And any discussion of state bankruptcy filings, they argue, “should be off the table because first and foremost it’s unconstitutional and is against the federal bankruptcy code.”
Mississippi Bracing for Impact
Funds from the latest federal virus relief law (Public Law 116-136) can’t be used to make up for revenue losses, so Mississippi will have to look for other ways to make up losses caused by the Covid-19 outbreak when the Legislature reconvenes May 18, Gov. Tate Reeves (R) said Monday at a briefing in Jackson, Miss.
Sales tax receipts were down between 10% and 15% in April relative to expectations, Reeves said. “Not nearly as significant as one would have anticipated,” he said. And while individual and corporate income tax receipts were down significantly, he noted, that wasn’t surprising because the state has delayed its deadline for those taxes from April 15 to May 15.
Reeves said it was too early to predict how the pandemic would impact the current budget or the upcoming fiscal year without seeing the tax receipts for May.
“I would anticipate that the lost revenue is going to be a real challenge for state government,” he said. “It’s going to be a real challenge for local governments. It’s going to be a real challenge across the country, and it’s certainly going to be a challenge in Mississippi.”
Florida Moves Corporate Tax Deadlines
Florida’s Department of Revenue on Monday issued an emergency order extending filing deadlines for some Florida corporate income tax filings.
The state’s corporate income tax brings in about $2.8 billion in revenue annually, according to a Monday news release from the department.
The order applies to entities with fiscal years ending on one of the following dates: Dec. 31, Jan. 31, and Feb. 29. Those corporations now have until Aug. 3 to file their returns.
Virginia Waives Interest on Income Tax Payments
Late corporate and income tax payments won’t be subject to interest charges if submitted by June 1, the Virginia Department of Taxation announced Monday.
The department had previously said it was waiving penalties on late tax payments due to the pandemic, but a change in the law was needed to waive interest. Amendments to do so were made in adjustments to the state budget proposed by Gov. Ralph Northam (D) and approved by lawmakers.
Income tax filing deadlines have not been changed and remain at April 15 for corporations and May 1 for individuals. But there is an automatic filing extension of six months—seven months for C corporations—on the books.
The interest waiver announced Monday also applies to sales tax return payments that were due in March and previously extended by the department.
Washington to Address Stimulus
Washington’s Department of Revenue is considering whether federal, state, and local stimulus payments to businesses can be taxed by the state.
Depending on how such incentive programs are set up, “the possibility exists that some of these programs may end up being considered subject to the B&O tax as gross income,” said Mikhail Carpenter, department communications manager, referring to the state’s business and occupation levy.
“The agency is doing its due diligence and investigating,” Carpenter said. He added there’s no indication of when the department will reach a determination.
—With assistance from Paul Shukovsky in Seattle, Andrew M. Ballard in Raleigh, N.C., and Patrick Ambrosio in Washington