CSAC Bulletin Article

Governor Announces New Small Businesses Tax Deferrals

December 3, 2020

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.

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