Tax Policy – April 17th Morning 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, March 27, April 2 and April 10.
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This past week, state policymakers made continued progress in their fiscal policy responses to the coronavirus outbreak. Major trends and developments are recapped below.
Tax Deadline Extensions
Several states extended their deadlines for payment of sales taxes, excise taxes, and other taxes remitted by businesses. Some of these announcements were new, while other states further postponed deadlines that had previously been extended. For example, Alaska has extended to July 15 the deadline for filing and payment of all taxes except Oil and Gas Property and Production taxes. Maryland initially extended the deadline for filing and remittance of various business taxes, including sales, alcohol, tobacco, and gas, to June 1, but that deadline has now been extended to July 15. Other states in which tax extensions have been newly or further postponed include Iowa, Michigan, Minnesota, and Missouri.
Allowing businesses to hold off on tax payment and filing obligations is a good way for states to help businesses preserve critical cash flow at a time when so many have little or no revenue coming in the doors. However, as most states are required by law to end their fiscal year with a balanced budget, some will have to consider revenue transfers, borrowing, or spending reductions to end the year without a deficit.
In addition, several states have provided newfound flexibility for their local governments to extend property tax deadlines if they so choose. For example, in Wisconsin, the governor has signed legislation that allows local taxation districts to waive interest and penalties on late property tax payments if the payments are for taxes due after April 1 and are paid by October 1. Tax districts making such waivers must first adopt a resolution authorizing such action. As property taxes are overwhelmingly a local, not a state, revenue source, it makes sense for states to allow, but not require, such deadline extensions where local governments lack such authority. Like Wisconsin, Massachusetts has also newly enacted legislation allowing certain property tax deferrals.
New Insight into Revenue Shortfalls
This past week, several states gained new insight into how the pandemic is impacting their bottom lines. For example, in Indiana the March tax collections report shows actual collections came in 6 percent lower than initially projected. In Delaware, Maryland, and Pennsylvania, state forecasters have announced new pandemic-related revenue shortfall estimates.
This past week, Kentucky and Virginia made further progress on their state budgets. In Kentucky, Gov. Andy Beshear (D) issued line-item vetoes to the slimmed-down FY 2021 budget and revenue bills, but those vetoes were swiftly overridden by the legislature. In Virginia, Gov. Ralph Northam (D) made significant amendments to a budget that, when it passed the legislature in early March, included numerous tax and spending increases. The amended budget freezes $874.6 million in spending that had been planned for FY 2021 and $1.4 billion in spending that had been planned for FY 2022. The governor’s amendments would delay a planned diesel tax increase but retain a gasoline tax increase. The governor has also proposed legalizing and taxing “skill games” for one year, with a tax imposed at 35 percent of revenues minus payouts and revenue being allocated to a COVID-19 response fund. The legislature will reconvene for its veto session April 22, at which time the governor’s amendments will be considered.
Source: Tax Policy – April 17th Morning State Tax Update