The U.S. Turns to Tax for COVID-19 Economic Relief
As the coronavirus (COVID-19) continues to spread globally, governments worldwide are trying to figure out the best way to bolster the slowing economy. To date, most countries across Asia, including China, Japan, South Korea, and more, are implementing value-added tax (VAT) cuts and tax relief on specific industries and products. Beyond Asia, we're also seeing similar measures being taken across Europe, where countries like Ireland, Sweden, and Germany are waiving interest on late payments for VAT.
Closer to home, state and local governments, as well as the federal government, are beginning to respond by turning to tax relief measures. Similar to what we would see during times of natural disaster, emergency measures are put in place across jurisdictions in the U.S., which enables the federal, state, and local governments to enact temporary tax relief measures to support those impacted and spur consumer spending.
Federal Tax Relief Measures
In recent days, the U.S. response to COVID-19 relief has been primarily focused on federal tax relief. On March 14, the House passed the Families First Coronavirus Response Act (H.R. 6201), which would provide paid sick leave and free coronavirus testing, expand food assistance and unemployment benefits, and require employers to provide additional protections for health care workers. Additionally, the Federal Reserve cut its benchmark interest rate to "close to zero" during a March 15 press conference call. The Fed expects to maintain the rate at this level until it's confident the economy "has weathered recent events and is on track to achieve our maximum employment and price stability goals."
State and Local Tax Relief Action
At the state level, numerous states have announced tax relief for businesses and individuals impacted by COVID-19, including filing extensions as well as interest and penalty waivers for a host of taxes, including lodging tax and sales and use tax. California, for example, has delayed state tax filing deadlines by 60 days for individuals and businesses unable to file on time, due to compliance with public health requirements. We've started to see many state and local taxing authorities announce tax changes to help combat the economic burden created by COVID-19, including:
- Alabama: Filing extensions provided by the IRS have been adopted. The deadline for motor vehicle registrations and renewals and property taxes for motor vehicles for the month of March is extended until April 15, 2020.
- Connecticut: Filing deadlines and payments for select annual tax returns are extended by at least 30 days.
- Kansas: The state will follow IRS guidelines and give taxpayers until July 15, 2020 to pay their income taxes. Returns will be due June 15, 2020.
- Maryland: Certain tax filing deadlines have been extended to June 1, 2020, including admissions and amusement tax; sales and use tax; withholding tax; alcohol, motor fuel, and tobacco excise taxes; and tire recycling and bay restoration fees.
- Massachusetts: Eligible taxpayers will automatically receive at least six extra months to file tax returns.
- Nevada: All taxation offices are closed to the public until further notice.
- New Hampshire: Unemployment benefits will be made "immediately available" to individuals who have reduced hours or are unable to work due to COVID-19.
- North Carolina: Late Action Penalties will be waived for taxpayers affected by COVID-19 who fail to timely obtain a license, file a return, or pay taxes due between March 15 and March 31, 2020.
- Oregon: The DOR will automatically grant an Oregon personal income tax return extension for taxpayers who file an extension with the IRS.
- Pennsylvania: All DOR offices and call centers are closed.
- San Francisco: Quarterly estimated payments deadlines for the city’s gross receipts tax, payroll expense tax, commercial rents tax, and homelessness gross receipts tax have been deferred until 2021 or, in some cases, waived.
- South Carolina: Deferred all April and May tax returns and payments until June 1, 2020.
- South Dakota: All DOR offices are closed until March 23, 2020.
- Washington: The DOR will work with businesses that can't pay their taxes on time due to the COVID-19 outbreak.
What Can We Expect Next?
Government leaders across the U.S. will continue to actively monitor COVID-19 developments and implement additional tax relief measures as needed. It's likely that tax filing and payment deadlines will continue to shift across jurisdictions.
Businesses and taxing authorities alike should also be prepared for hiccups in local government tax administration processes. While there has yet to be any disruption in sales and use tax administration, as we move forward, it can be expected that any sales and use tax bottlenecking we experience will originate at the local government level. This is due to the fact that many local governments process sales tax using paper and checks, so if there's any disruption to the mail delivery service there will also be a residual effect on returns and payment delivery.
Fortunately, due to the adoption of automation technology across businesses and at the state level, many businesses are able to file, and states are able to receive returns and payments electronically, which can be done remotely. The ability to avoid tax collection disruptions will be critical for state and local governments since they're at the forefront of government responses to the virus and will need the incoming tax revenue to cover the costs of their response.
As we move forward, we can expect more governments to go beyond income tax relief and turn to sales and use tax measures in an effort to further decrease the economic burden of COVID-19 on U.S. businesses and citizens.
Scott Peterson is the vice president of U.S. tax policy and government relations for Avalara, a software provider for automated tax compliance.
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