Tax Policy – April 2nd Evening State Tax Update

On March 19 we launched a tracker providing a repository of information related to state fiscal policy responses to COVID-19. We are updating the tracker frequently and will be using the Tax Foundation blog to summarize new developments and provide analysis of relevant trends as they emerge. This blog post is part of that series. Past Updates: March 24, March 25, March 26, and March 27.

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Income Tax Filing and Payment Deadline Changes

As of April 1, every state with an individual income tax has offered taxpayers some form of income tax extension. Most states, with a few exceptions, traditionally follow the federal government in holding Tax Day on April 15. As a result, when the Internal Revenue Service (IRS) moved this year’s Tax Day to July 15, most states chose to follow suit, postponing their own filing and payment deadlines by three months.

However, there are some notable holdouts. While no state is requiring taxpayers to file or pay their individual income taxes by April 15, Virginia (a state whose typical Tax Day is May 1), has kept May 1 as the filing deadline while extending the payment deadline to June 1. Meanwhile, Idaho has extended its filing and payment deadline to June 15 (a two-month extension), while Mississippi has extended its filing and payment deadline to May 15 (a one-month extension).

Two states have extended their own filing and payment deadlines beyond the July 15 federal deadline. Hawaii is giving taxpayers until July 20 to file and pay. (Hawaii’s Tax Day is typically April 22.) Iowa, a state whose Tax Day is typically April 30, is giving taxpayers until July 31 to file and pay.

Telework Responses

With so many employees across the country working remotely due to state stay-at-home orders, there is potential for teleworking employees to expose their employers to tax liability in states for which those businesses otherwise would not have nexus. Similarly, employees working remotely in another state can trigger withholding tax requirements in the state in which they are now working. Two states, New Jersey and Mississippi, have instituted temporary adjustments in response to these unusual circumstances. In New Jersey, the state is temporarily adjusting nexus thresholds to avoid having nexus attach simply due to residents working from home due to the coronavirus situation. In Mississippi, the Department of Revenue has announced that income tax withholding requirements will be based on employees’ normal work location, not their temporary telework location. At a time in which most employees are not allowed to go to the office, it would be prudent for other states to consider making similar adjustments.

Other Tax Filing and Payment Deadline Changes

Several additional states have announced tax filing and payment deadline extensions for taxes besides income taxes. In California, Gov. Gavin Newsom (D) has extended the filing and payment deadline to July 31 for a broad spectrum of business taxes. Specifically, businesses are eligible for the extension if they owe less than $1 million. Florida, one of the states without an individual income tax, has extended the filing and payment deadlines for various sales, tourism, and excise taxes. Kansas is among the states giving taxpayers additional time to apply for a homestead refund and other forms of property tax relief.

State Revenue and Spending Developments

As most states are entering the last quarter of their 2020 fiscal year, many face steep and unexpected revenue shortfalls. Not only is this complicating states’ efforts to close out FY 2020 with a balanced budget, as is required by law in most states, but it is also complicating states’ efforts to finalize their budgets for FY 2021. New Mexico’s FY 2021 budget has already been enacted, but significant adjustments are being considered for a special session. South Dakota Gov. Kristi Noem (R) has said she plans to sign the budget bills that already passed both chambers but will avoid spending new revenue until the legislature can reconvene in a June special session to make revisions. In Idaho, Gov. Brad Little (R) signed an executive order requiring all agencies not directly responding to COVID-19 to cut their budgets by 1 percent for the remainder of the current fiscal year.

State Legislative Session Changes

Multiple states have further postponed their next legislative meeting day, including Alabama, Colorado, Illinois, Louisiana, Michigan, Oklahoma, Rhode Island, and Vermont. In Pennsylvania, the House and Senate voted remotely for the first time. The Colorado Supreme Court has ruled the legislature may extend its 120-day legislative session beyond the scheduled May 6 adjournment date in order to make up legislative days it missed due to COVID-19.

Source: Tax Policy – April 2nd Evening State Tax Update