California Tax Relief Available to Businesses
Executive Order N-40-20, signed by Governor Newsom on March 30, 2020, offers additional California tax relief to businesses and individuals. Below is a summary of significant business tax-related relief available as of April 3, 2020.
Filing and payment deadlines for returns and filings due between March 12, 2020 and July 15, 2020 (the “postponement period”) have been extended to July 15, 2020. This includes, but is not limited to, 2019 returns and payments, 2020 1st and 2nd quarter estimated payments, and 2020 LLC taxes and fees.
Claims for refund, protests of Notices of Proposed Assessment, and appeals or petitions for rehearing filed with the Office of Tax Appeals with due dates during the postponement period will be considered timely if filed on or before July 15, 2020.
Note that the statute of limitations for the Franchise Tax Board to issue Notices of Proposed Assessments to taxpayers is also stayed. As a result, for any statute of limitations to assess additional tax that expires during the postponement period, the Franchise Tax Board has until July 15, 2020 to issue a timely Notice of Proposed Assessment.
Sales and Use Taxes
The deadline for first quarter 2020 returns (normally due April 30, 2020) has been automatically extended to July 31, 2020 for all taxpayers with a quarterly sales and use tax liability of less $1 million. Taxpayers with liability of $1 million or more may request an extension online, via email, or via letter, and requests will be considered on a case-by-case basis.
Effective April 2, 2020, taxpayers with less than $5 million in taxable annual sales will be able to take advantage of a 12-month, interest-free payment plan for up to $50,000 of sales and use tax liability. Businesses must file returns in order to be eligible for the delay, and once filed can enter into a payment plan to spread the liability over 12 months, interest free.
Effective April 1, 2020, claims for refund and appeals to the Office of Tax Appeals with due dates prior to July 31, 2020 are extended by 60 days.
While the extensions of time to pay taxes may help businesses weather the health crises, we note that significant additional penalties can apply for collecting but not remitting taxes (beyond traditional late filing penalties). While these penalties are waived during the extended filing periods, they are not waived indefinitely. Accordingly, taxpayers who take advantage of the extensions should take steps to ensure the ability to make payment when payments become due.
Deadlines for many other taxes and fees administered by the Department of Tax and Fee Administration have also been extended.
Businesses directly affected by COVID-19 can request up to a 60-day extension to file state payroll reports and deposit state payroll taxes without penalty or interest. Any request must be in writing, include the impact of COVID-19 on the business, and be received within 60 days of the original past-due date of the payment.
The Employment Development Department has not issued guidance as to when a business will be considered to have been “directly affected” by COVID-19. While the Franchise Tax Board has announced that it will consider all California taxpayers to have been directly affected for purposes of income tax extensions, the Employment Development Department’s guidance that a request must be made in writing and include the impact of COVID-19 on the business indicates that the relief may be granted on a case-by-case basis. However, such a case-by-case approach seems at odds with allowing the request to be made after the return is due, and we would hope that such requests would be granted liberally.
The April 10, 2020 deadline for the second installment of locally assessed property taxes has not been extended. Neither the Board of Equalization, the State Controller, nor individual counties have the statutory authority to extend the deadline. Various taxpayer groups have requested that Governor Newsom use his executive authority to suspend the Revenue and Taxation Code provisions imposing penalties on late payments.
While counties do not have authority to extend payment deadlines, they do have limited authority to waive penalties. The scope of this authority is not entirely clear, in particular with respect to whether taxpayers must request waivers (which generally can only be done after payment is made), and whether counties can grant waivers for general economic reasons. Additionally, waivers may only be granted if payment is made by June 30, 2020, and the 1.5% per month penalty that applies on taxes that remain unpaid by June 30, 2020 cannot be waived.