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Daily Tax Report: State

Tax Filing Delay Turns Outlook ‘Grim’ for State Budgets

March 22, 2020, 1:34 AM

Postponing tax payment deadlines will have a ripple effect on state revenues, warns the Federation of Tax Administrators.

A majority of the 42 states with a broad income tax are tied automatically to federal deadlines, which means their new payment date became July 15 when the Internal Revenue made that switch in response to coronavirus economic upheaval.

Since most states have fiscal years ending between March and June 30, revenue anticipated in fiscal 2020 won’t show up until fiscal 2021.

The looming state budget “bloodhshed” will be difficult, but the loss of cash flow will cause a larger crisis, Verenda Smith, FTA deputy director said.

States were counting on receiving billions of dollars in income tax reconciliation payments during April, money that had been budgeted for everything from paying taxpayer refunds to paying the state’s share of Medicaid. That loss of cash on hand cannot be replaced easily or cheaply, she said.

FTA has received requests to explain how the recent federal extensions in the individual income tax April 15 filing deadline and the payment deadline have affected state revenues.

“This is the grim tax revenue reality,” she said. “We expect many sole proprietorships and individuals will no longer have the cash to make their tax payments by mid-July, and after that we will be dealing with bankruptcies and the permanent loss of those revenues,” she said.

Smith said it was too early to estimate the impact.

To contact the reporter on this story: Tripp Baltz in Denver at abaltz@bloomberglaw.com

To contact the editors responsible for this story: Katherine Rizzo at krizzo@bgov.com; Rachael Daigle at rdaigle@bloombergtax.com

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