Maryland Bracing for $2.8 Billion Decline in Tax Revenue (3)

April 10, 2020, 5:32 PMUpdated: April 10, 2020, 10:17 PM

Maryland and Indiana unveiled big budget shortfalls. The state of California, meanwhile, and some of its cities, are further adapting rules to the reality on the ground. Oregon is looking for ways to move ahead with a controversial business tax, and Washington, D.C. announced an extension of some tax deadlines. Here’s the latest on shifting state tax guidelines, deadlines, and policy to deal with the coronavirus pandemic. For Thursday’s coverage click here. Here’s a state-by-state roadmap.

Gov. Larry Hogan (R) said Friday that Maryland anticipates a revenue loss of up to $2.8 billion for the 2020 fiscal year and that he is implementing a budget and hiring freeze across state agencies.

Hogan, speaking at a press conference, said a shortfall of that magnitude would represent a revenue decline of 50% over the next 90 days, and up to a 15% overall reduction in revenues for the fiscal year that ends July 1.

Hogan said he has not had time to review any legislative spending proposals submitted in the last few days, but he did not think it likely that he would sign any bill calling for increased spending. Budget cuts will be required in all state agencies, Hogan said. “This will include cuts to so-called mandated spending,” he said. Only Covid-19 response expenses and payroll will be spared.

The state will be tapping into and spending “much of, perhaps even all of” the state’s rainy day fund, Hogan said.

“Responding to this crisis likely will create a multi-year budget issue, which will require further substantial budget reduction actions,” Hogan said.

Indiana’s Bleak Budget

Indiana’s revenue was 6% under estimates for March, the state’s budget chief said Friday, despite the fact that social-distancing orders were instituted only halfway through the month, including the shelter-in-place order issued March 23.

“We do know that the descent will be steep and rapid,” Christopher Johnson, director of the Indiana Office of Management and Budget, said Friday in a press conference. “What we don’t know for sure is what the pace of the recovery will be. This will present challenges not just to the current budgets, but to future budgets.”

Comments to the state’s March budget report said that the state’s largest revenue drivers—sales tax, individual income tax, corporate income tax, and gambling taxes—were all lower than anticipated.

Some California Cities Extend Property Tax Deadlines

San Francisco County and its neighbor to the south, San Mateo County, have given property owners until May 4 to pay their property tax bills, but most of California’s 58 counties are sticking to the April 10 deadline.

The two counties are going beyond a recent pledge from all county tax collectors to waive interest and fees on late property tax payments due April 10 from taxpayers affected by the pandemic. As a group, the counties resisted calls to push the payment deadline back and instead said property owners could ask for relief from late fees and interest. Gov. Gavin Newsom (D) declined to use his authority to extend the deadline.

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.

San Francisco and San Mateo county officials, using resolutions adopted by their boards of supervisors, closed their treasurer-tax collector offices through May 3 to honor health officers’ orders to shelter in place. Because the offices can’t accept payments in person, they extended the deadline until the first business day after those orders are scheduled to end.

Both counties encourage property owners to pay on time using regular mail or their online payment systems. Owners can’t appeal interest and penalties until after they’ve missed the deadline and penalties are assessed, the tax collectors said in notices to property owners.

Santa Clara County, in the heart of Silicon Valley south of San Mateo, is maintaining the April 10 deadline but offering to waive charges related to late payments due to reasonable cause. Similarly, Los Angeles and San Diego tax collectors are also maintaining the April 10 deadline, saying they don’t have the authority to change it.

The California State Association of Counties and the California Association of Treasurers and Tax Collectors’ issued a joint statement April 4 that appeared to provide coherence on waiving penalties and fees for late payments after some tax collectors had said they would grant relief while others said they wouldn’t. Business groups had unsuccessfully asked the governor to move the deadline to July 15.

California Board Details Signature Workaround

The California Franchise Tax Board has made a number of adjustments this week to its procedures and deadlines for income tax matters, including acceptance of returns without original signatures.

Taxpayers can submit paper returns or other documents due during the overall postponement period of March 12 to July 15 as long as they provide a document with a copy of an original signature or a faxed signature on the signature page, the FTB said. Documents submitted under a power of attorney still require an original signature.

The tax board has already extended the deadline for filing income tax returns and paying tax due to July 15 from April 15. It has also:

  • Temporarily suspended some collections activities such as wage attachments, bank levies, business suspensions, field agent calls, and twice-yearly listing of the 500 largest personal and corporate income tax delinquencies;
  • Temporarily suspended using tax refunds to offset taxes owed;
  • Begun accepting requests to extend the statute of limitations on open matters with e-signatures, faxed or scanned copies of signatures; and,
  • Halted new audits through April and begun granting extensions of time to respond to document requests for open audits.

More information about procedural changes is available on the board’s website for frequently asked questions related to Covid-19.

California Conforming on Federal 401(k) Rules

Among the other news from the FTB this week: California is automatically following new federal rules waiving penalties for pre-retirement withdrawals from qualified plans such as 401(k)s for coronavirus-related hardships.

The penalty waiver will now apply for California income tax purposes as well, the FTB advises. The revised rules eliminate the 10% penalty for pre-retirement withdrawals of up to $100,000.

California’s adoption of other provisions of the recent virus relief law (Public Law 116-136) are less certain. Tax breaks for charitable contributions, employer payments on student loans, net operating losses, and other items would require enabling legislation to receive the same tax treatment at the state level.

Lawmakers are on recess until at least May 4 to help limit the spread of the virus and the agenda when they return is uncertain.

The FTB also said the federal emergency increase in unemployment benefits of $600 a week and relief payments of $1,200 for individuals and $500 per qualifying child aren’t taxable for state purposes.

Changes in federal law related to tax treatment of retirement savings is one of the few areas California automatically adopts.

Oregon May Hold Virtual CAT Hearing

The Oregon Department of Revenue is considering options for a virtual public hearing to establish permanent rules implementing its new Corporate Activity Tax, a department spokesman said Friday.

The department outlined its strategy for a public hearing and comment process formalizing the CAT, which became effective on Jan. 1 and operates as a privilege tax levied on businesses for their total commercial activity in Oregon. The agency hopes to have a hearing at the end of May. While the state generally requires in-person hearings for such rulemaking, spokesman Robin Maxey said it may have to convene a virtual meeting if required under Covid-19 directives from Gov. Kate Brown (D).

Separately, the department announced Thursday that estimated tax payments under the corporate and personal income tax for the first quarter are due April 15, and first-ever quarterly payments under the CAT are due April 30.

On March 25 Brown said most 2019 tax filing deadlines would be extended to July 15 due to the Covid-19 crisis, but the department emphasized the extensions “do not include estimated quarterly tax payments on corporate and personal income tax otherwise payable or estimated payments for the CAT.”

Washington, D.C. Extends Deadlines

The District of Columbia said Friday it was extending deadlines for filing income, partnership, and franchise tax returns until July 15. The automatic extension also applies to combined return filers.

Taxpayers can still apply for a further extension of October 15.

— With assistance from Alex Ebert in Columbus, Ohio; Sam McQuillan in Washington, D.C.; and Michael J. Bologna in Chicago.

(Adds California 401(k), Indiana.)

To contact the reporters on this story: Laura Mahoney in Sacramento, Calif. at lmahoney@bloomberglaw.com; Jennifer Kay in Miami at jkay@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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