Governor Newsom announced a
new tax relief plan for small businesses impacted by COVID-19
restrictions. The package includes both the extension and
expansion of sales tax deferrals and interest-free payment plans
and new COVID relief grants for small businesses. Under the new
package, small businesses with less than $1 million in sales tax
will be given an automatic three month extension on their sales
and use tax bills. Those businesses will not be required to file
and remit their taxes due between December 1, 2020, and April 30,
2021, with no interest or penalties. Taxes that would otherwise
be due January 31, 2021, will now be due April 30, 2021, and
remittances that would otherwise be due April 30, 2021, will now
be due July 31, 2021.
Also, in an expansion of a program begun earlier this year,
businesses with less than $5 million in taxable retail sales can
apply to defer up to $50,000 in sales and use tax payments and
instead pay it in 12 equal monthly installments. This program
will also be expanded to businesses operating in sectors
particularly impacted by COVID-19 restrictions, like restaurants
and gyms, and any business that demonstrates a significant drop
in sales. Eligible businesses will be allowed interest-free
deferrals on tax owed for the fourth quarter of 2020 and the
first quarter of 2021, with the first payment due April 2021.
While the total cost of these programs has the potential to be
quite large, it is not yet clear how many businesses will take
advantage of the new relief opportunities. In April, the Governor
announced a
tax layaway program that allowed up to 300,000 filers (those
with taxable sales under $1 million) to defer sales tax payments
for 12 months, for a maximum possible cost of $3 billion.
However, only about $150 million was deferred under the plan and
approximately $42 million of that has been repaid. The concept is
very similar to the new three month extension; it allows
businesses to keep the sales taxes collected from consumers,
providing cash flow relief via what is essentially a loan from
the state, counties, and cities.
Counties should note that these reductions are temporary
deferrals, not permanent cuts. However, the effects on cash flow
could be significant for some counties, especially because the
program extends across fiscal years. Further, because 1991 and
2011 realignment allocate their base and growth differently,
receiving revenue in a different fiscal year could affect
allocations, depending on how the state chooses to account for
those revenues. Advocates for CSAC and CACE have already begun
working with the Department of Finance to address these issues.
