As COVID-19 continues to spread across the country, state and local governments are racing to pass emergency relief measures to assist taxpayers directly impacted by the coronavirus pandemic and help prop up the slowing economy. State tax relief has primarily come through extending income tax filing and payment deadlines for individuals and corporations, with some states providing financing programs and tax return filing and payment extensions for certain indirect taxes as well. 

Income Tax Filing and Payment Deadline Extensions

In an effort to give taxpayers more time to prepare and pay their taxes, on March 20, 2020, the Internal Revenue Service provided a grace period to taxpayers to file their 2019 federal individual and corporate income tax returns that are due on April 15, 2020 and to pay the associated taxes, as well as 2020 first quarter estimated tax payments, such that a return that is filed and a payment that is made by July 15, 2020 is treated as being timely filed or paid, as applicable.  On April 9, 2020, the Internal Revenue Service extended the relief to cover all income tax returns, associated schedules, forms, associated payments, and other time sensitive actions that were due between April 15, 2020 and July 15, 2020. States have since been encouraged to adopt the IRS guidelines and to date, nearly forty states have extended their income tax return filing and payment deadlines in whole or in part, providing similar relief to individuals and businesses. Most states have extended their filing and payment deadlines for both individual and corporate taxpayers to July 15th, consistent with federal treatment. However, some states have extended their filing and payment deadlines to different due dates (e.g., Connecticut, Idaho, and Iowa), while others have extended these deadlines for individual taxpayers only (e.g., Arkansas, Massachusetts, and Minnesota), and a few have yet to provide any tax filing or payment extension (e.g., Virginia). In addition, not all states have extended the estimated tax payment deadlines for the 2020 tax year. 

Non-Income Tax Filing and Payment Deadline Extensions

States and municipalities are also issuing emergency indirect tax relief measures (e.g., sales, use, excise, property, and payroll taxes) to help their distressed economies amid the coronavirus crisis. While some governments are implementing measures to aid broad taxpayer groups, others are focusing on certain industries (e.g., restaurants, bars, and hotels) or small and mid-sized businesses that have been directly impacted by COVID-19. For example, in California, eligible small businesses (those with less than $5 million in annual taxable sales) can take advantage of a twelve-month, interest-free payment plan for up to $50 thousand of sales and use tax liability and can choose to defer up to $50 thousand of their first quarter 2020 tax liabilities and pay off the obligation in twelve equal monthly installments with July 31, 2020 as the initial payment date. Similarly, eligible California businesses (those filing indirect tax returns reporting less than $1 million in tax liability) have been granted an automatic three-month extension for taxes and fees (e.g., sales and use taxes, fuel taxes, cigarette and cannabis taxes, motor vehicle taxes, environmental fees, and insurer taxes) administered by the California Department of Tax and Fee Administration (CDTFA), meaning there is no need to request extensions for taxes due in April and May or to apply for relief from penalties and interest. Likewise, Illinois has provided for penalty relief for late sales and use tax payments due in April for eating and drinking establishments that reported less than $75 thousand of sales and use tax liability in 2019. Payroll and property tax payment deadlines have also been extended and penalties will be waived in certain states and localities, so taxpayers looking for liquidity have several options, depending on their location.   

Physical Presence Nexus – Teleworkers

As shelter-in-place orders remain in effect throughout the country, many businesses are requiring employees to work from home. As a result, companies may have teleworkers in states where they previously lacked a physical presence.  Generally, the presence of remote employees in a state constitutes nexus and creates income and/or sales tax return filing obligations for the employer in such state. Recognizing the complications that this issue may cause for businesses, Mississippi, New Jersey, Pennsylvania, and the District of Columbia have temporarily relaxed their physical presence standards so that teleworker arrangements developed in response to COVID-19 will not create nexus for income tax purposes. Currently, there is no guidance as to whether these states will apply similar nexus waivers for sales tax purposes. In any event, employers with this particular fact pattern should monitor this issue. 

Alvarez & Marsal Taxand Says:

While states continue to address the impact of COVID-19, we have consolidated the latest state tax responses (as of April 10, 2020), which can be accessed through the link below. As relief measures continue to evolve, we will update this COVID-19 SALT Response Summary on a regular basis, so you can monitor up-to-date relief measures that may be available in your states. In the meantime, stay safe, be well, and know that Alvarez & Marsal is available to answer questions and assist you with these relief provisions.

Click here to read our COVID-19 Response Summary >