Horizons Fall/Winter 2020

COVID-19 & The Effects on State & Local Taxation by Rhonda Sparlin, CPA

W e all watched as state governors and city mayors issued mandatory shutdown orders and other restrictions as the uncertainties of the COVID-19 pandemic spread across the United States. These orders were followed by deferrals of many state income tax deadlines, some sales and use tax payment deadlines, and even some property tax filing and payment deadlines. In addition, many states, localities, and economic development organizations created grants and incentives to encourage businesses to keep employees working. Businesses responded to the mandatory shutdown orders through adaptations. As the remote work environment extended, employers and employees each realized that work could be performed at home, at vacation homes, in the car, in an RV, or at other imaginative locations. Businesses also adapted by expanding and broadening their online or remote sales strategies. Business and individual customers searched and ordered from websites or called new suppliers for the products they needed. As a result, many businesses shipped higher volumes of sales to customers in other states.

Recovery at the state and local government level means rebuilding the funds necessary to provide basic safety, education, and other services that we all expect and demand. It is estimated the COVID-19 pandemic has created fiscal deficits in excess of $1 trillion at the state and local levels. These jurisdictions will resolve these fiscal challenges through a mix of federal funding, legislative changes, and enforcement efforts. During the past few months, we have seen several proposals by state and local taxing jurisdictions to expand the sales and use tax base to include broadly-defined services such as Internet advertising and personal information services. Other states, such as California and Colorado, considered legislation that disallowed or limited the use of net operating losses or tax credits. A broad range of legislative proposals and considerations will become more common and pressing, especially as we enter the 2021 spring legislative session. The state and local taxing jurisdictions will also enhance enforcement efforts of taxes legally due. Since the SCOTUS decision in South Dakota v. Wayfair in June 2018, all but a few states have adopted economic presence thresholds for sales tax collections.

Fall/Winter 2020

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