By now most, if not all of us, have had some change in their life and daily routine as a result of the Covid-19 pandemic. While many of us have lived through several national crises, during the course of my life, there has been nothing quite like this. I suspect that there could be more dramatic changes to come and we can only hope and pray that the loss of life seen in other parts of the world do not happen here.
Please indulge me as I reminisce a little. I started my career in 1984, which was just as the country and the world started coming out of a recession. As a young staff, I saw the Savings and Loan crisis resulting in the failure of almost 1/3 of the nation’s savings and loans during 1988 – 1995. In February of 2000, I moved to San Jose, California, just in time for the start of another recession that resulted in the collapse of the dot-com bubble. That next year our country experienced the 9/11 attack. Then in late 2007 through June of 2009 we had the “Great Recession” as a result of the subprime mortgage crisis. Thankfully, since then we have been fortunate to enjoy a strong economy and seen growth worldwide. Many of those working today have never experienced a true economic downturn or recession. For the most part, the 2010’s were good.
Given the unknown length of time we can expect this to last and the potential toll, there isn’t really a modern time comparable, at least in the United States. It seems it could be worse than 9/11 but not to the level of WWII, at least hopefully not. We have heard the remarkable stories from the WWII generation and the perseverance demonstrated during that time. It isn’t surprising that it was nicknamed the “Greatest Generation”. The extraordinary determination and strength of character displayed at that time ultimately resulted in the United States becoming the world leader for innovation and the driving force behind the world’s economy for decades. While the economy is clearly stalled here, and around the world, I have no doubt that it will return. I can’t help but wonder if this crisis will define our generation. What will they call us?
State Tax Issues after Crisis – History
Now, with respect to state taxes, if the recent past can provide any guidance, I think we can predict what we might see from the states in the short term as well as the long term. Keep in mind that this is the rambling of a “senior” state tax professional that started her career in an earlier century, so it is quite possible that you could disagree or I might possibly be wrong. My father often described me as “often wrong, but never in doubt”, and he was probably right.
In the short term, the states are going to follow much of what the federal government is doing. As we have seen, consistent with the federal government, most states are pushing out the 2019 individual tax return filing and payment deadline to July 15th as well as the 2020 individual estimated tax payments normally due March 15. For indirect taxes, many states have published guidance that also extend the filing and payment of sales and use taxes without imposing interest or penalties. I suspect that this type of relief will continue to be adopted by more states and we will see more extending filing and payment dates without the imposition of interest or penalties. It remains to be seen how many states will make this automatic or will require you to request relief.
Currently, states are spending exorbitant resources on the health and safety of its people. Understandably and with good reason, there is a frantic effort for each state to purchase the needed supplies for its citizens. This is concurrent with the significant slow-down of the economy. People are becoming unemployed and tax revenue is not being generated at the same level for federal, state and local purposes. So, this is where the long-term impacts will be felt. In the short-term, we need to care for the health and safety of our people. Long-term, we will need to pay for it.
What to Expect Going Forward
The toll on jobs and the suddenness of skyrocketing unemployment, is unprecedented. It can be expected that the federal, state and local governments will be offering hiring incentives as well as incentives to make capital investments. There will be a rush to get people employed and to spur investment in our communities. If the past is any indicator, we can expect the states will start considering both incentives as well as revenue generators. With respect to corporate taxes these can include, but are not limited to, the following:
Incentives
- Hiring credits
- Investment credits
- R&D credits
- Enterprise zones
- Financing
- Negotiated credits and incentives
Revenue Generators
- Rate Increase
- Suspension of NOLs and/or credits
- Expansion of the sales and use tax base
- Apportionment factor changes
- Reduced deductions
- Elimination or reduction of select credits or incentives
While this is not the time for states to be talking about tax incentives or revenue generators, there will come a time when that happens. When it does, it should hopefully signal that the worst is behind us, at least in terms of COVID-19 and the impact on the economy. When that time comes, we will be here ready to help you understand the impact, positives and negatives, to your business.
So, thank you for indulging this “old-timer”. Those of us here at Miles Consulting are still here helping our clients with their state tax issues from home, taking care of our families and trying to become substitute teachers. We are also monitoring how the states are reacting and are ready to help you any way we can.
I have no doubt that we will find our way through. May you and your families stay healthy.
