After the federal income tax deadline was extended in late March, many states were quick to follow suit. Thirty-three states and D.C. adopted July 15 as the state income tax deadline, including Arizona and California. Besides the state income tax, some states are also offering delayed sales tax payments.
What Is the Relief?
The delayed sales tax payments that states are offering are designed to let businesses use collected sales tax for cash flow purposes. However, every state expects businesses to eventually pay the delayed sales tax. Proceed with caution, though, as some states are not waiving interest that applies to the deferred tax. It may also be necessary to file sales and use tax returns on the regular due dates, even if not making the payment, as failure to file can invalidate terms of the deferral in some states. Finally, do not assume that the relief applies even if your business is in a state offering it: some states have limited relief to specific types of businesses.
States Offering Sales Tax Relief
|Alabama – P||D.C. – P&I||Louisiana – P&I2||Minnesota – P&I||South Carolina – P&I|
|California – P&I||Florida – P&I||Maryland – P&I||New York – P&I3||Vermont – P&I|
|Colorado – P&I||Illinois – P&I||Massachusetts – P&I||North Carolina – P||Virginia – P|
|Connecticut – P&I||Iowa – P&I1||Michigan – P&I||Pennsylvania4||Washington – P&I5|
1 – Interest imposed after 60 days ; 2 – LA will reduce interest; 3 – Only quarterly and annual qualify and must apply for waiver; 4 – Waiver only for pre-payment required of large businesses; 5 – Monthly filers must apply, interest will not be waived of monthly filers
In California, only those taxpayers who file returns with less than $1 million in tax or businesses with less than $5 million in taxable sales qualify for the relief. For those with less than $1 million in tax, the business automatically has until July 31, 2020 to file and pay the Q1 2020 tax. This applies to all taxes and fees administered by the CDTFA. No requests need to be made for extension or relief. For those businesses with less than $5 million in taxable annual sales, they may defer up to $50,000 of sales and use tax liability. The deferred liability will be due in 12 equal monthly installments and no interest or penalties will be assessed.
Other Tax Relief Measures
Some localities are also suspending sales tax collection. Some states are exempting sales and use tax on COVID supplies or other property used to work from home.
Some states are relaxing nexus provisions so that businesses are not deemed to have a new physical nexus where employees are located while adhering to stay-at-home orders. Along the same lines, some states will not require new withholding requirements for businesses based on an employee’s temporary telework location. The Alcohol and Tobacco Tax and Trade Bureau has made nonbeverage products made with ethanol, including hand sanitizer, not subject to federal excise tax and some states has made alcohol purchased to make sanitizer tax-exempt.
Consult with a tax advisor that has experience handling state and local tax matters to make sure your business stays up to date on the latest developments.
Brian Ess, J.D., Supervisor