State and local taxes during the pandemic

Eileen Sherr, CPA, CGMA, a senior manager in the AICPA’s Tax Policy and Advocacy team in Washington, D.C., describes her work with volunteer members of the AICPA’s Technical Resource Panel for State and Local Taxation and with state CPA societies as they advocate with state tax authorities for coronavirus-related taxpayer relief at the state and local level, and resources for keeping track of each jurisdiction’s response.

Editor’s note: Shortly after this interview was recorded, North Carolina enacted S. 704 (2020 N.C. Sess. Laws 3) providing tax and other coronavirus-related relief that includes waiving interest for April 15, 2020, through July 15, 2020, on underpayments of taxes on individual and corporate income, franchise, partnership, and estate and trust returns.

What you’ll learn from this episode:

• In what ways state tax filing and payment relief measures do and don’t correspond to those of the federal government.
• What further provisions the AICPA has recommended for state and local tax administrative and filing and payment relief during the pandemic.
• Links to AICPA resources for learning more about state and local tax relief provisions and guidance related to COVID-19.

Play the episode below or read the edited transcript:

For more news and reporting on the coronavirus and how CPAs can handle challenges related to the pandemic, visit the JofA’s coronavirus resources page.

AICPA coronavirus tax resources

• Recommendations on state tax administrative, filing, and payment relief
• State tax guidance chart
• Coronavirus (COVID-19) Tax Policy & Advocacy Resources page (advocacy-focused news, blogs, webinars, and podcasts)
• Coronavirus (COVID-19) Tax Resources page (client-facing tools, practitioner guidance, and learning)

To comment on this podcast or to suggest an idea for another podcast, contact Paul Bonner, a JofA senior editor, at Paul.Bonner@aicpa-cima.com.

Transcript:

Paul Bonner: Hello, and welcome to the Journal of Accountancy podcasts. Our guest today is Eileen Sherr, CPA, CGMA, a senior manager in the AICPA’s Tax Policy and Advocacy team in Washington, D.C., and staff liaison to the AICPA’s Technical Resource Panel for State and Local Taxation. Eileen will speak to us today about recommendations for administrative, filing, and payment relief for state and local taxes during the coronavirus pandemic.

Hi, Eileen and thanks for speaking with us.

Eileen Sherr: Hi.

Bonner: We might start by talking about the filing and payment date, I was thinking, because most or maybe all states have delayed their due dates and payment dates for returns and payments, along with the federal government, but not necessarily to the same date as the federal government, right?

Sherr: Correct, 40 states with personal income tax went with July 15 like the federal government.

Bonner: However, I was a little surprised to learn recently that they’re not all waiving interest, although I suppose most are waiving penalties. Do you have a read on that?

Sherr: Yes, most state tax authorities are doing as much as they can to align it with the federal government. However, some of them are restricted by their state law on removing interest. They can waive the penalties, but they can’t waive interest without state legislation to allow them to do that. So the legislatures would have to meet, but very few are meeting right now, and they would have to pass legislation to make that happen for interest. But most of them are waiving penalties.

Bonner: And that covers failure to file on time by April 15, failure to pay taxes — which isn’t a failure, I guess, in this case, but merely postponed. But I guess one thing we need to take note of is, like the federal government, this applies to maybe even a wider range of types of taxes than the federal government. We’ve got sales and use taxes we’re talking about, those kinds of returns, even property taxes, I suppose, right?

Sherr: Right and one of our suggestions so far has been that all the states not only should move to a July 15 delay for filing and payment as well as interest and penalties and provide broad reasonable-cause relief, we would like, for the income taxes and for all types of entities and all types of tax returns. Including the sales and use, property taxes, any other type of business activity taxes as well.

Bonner: I see, right, and so reasonable-cause relief, what would that entail, do you think?

Sherr: It would be any type of late filing or payment that’s related to the pandemic, the state taxing authorities should waive. So if someone wasn’t able to file something in time or is late, that they would allow that and not charge penalties and interest.

Bonner: I see. I was surprised to find that my own state [North Carolina, but see the update in editor’s note above] is charging 5% interest after April 15. It says state law prevents any kind of waiver except in the case of bankruptcy. Is that pretty much normal? You mentioned that most states have some kind of law against waiving interest, right?

Sherr: Right, unfortunately, some of the state tax authorities cannot do it without having statutory authority, and the legislature would need to meet and provide that. Most states do have that flexibility, but not all. So some states will have to have the legislature meet and enact it.

Bonner: And so the state CPA societies are acting upon these recommendations from the AICPA that have been formulated, I think, by the technical resource panel. Do you have any read for how they’re getting through to the state legislatures if they’re not meeting? Are they able to correspond and communicate these desires and get some kind of response?

Sherr: We know that a lot of the state societies are in touch with the governors, are in touch with their state tax authorities. The departments of revenue are still operational, they’re still working, they’re just working remotely. They’re coming out with guidance and they are issuing lots of notices and FAQs, frequently asked questions. We have 11 recommendations that we’ve shared with the state CPA societies, and a lot of the state CPA societies are able to work through the departments of revenue to get many of these changes made. A few may involve some legislation, and that’s obviously going to be harder to accomplish at this time. A few of the legislatures are still in session, but very few.

Bonner: You mentioned that state officials are working remotely; that’s true of virtually everybody who can work remotely, I think, right now, and that has implications for several kinds of tax issues related to states, doesn’t it?

Sherr: Yes, there are a lot of issues for the remote workers. It could impact nexus and apportionment and obviously withholding at the state level for all the remote workers. So we have as one of our recommendations that the state departments of revenue continue to treat the work location that was before the pandemic as the continuing work location for employees for withholding purposes, for liability purposes, for nexus, and for apportionment, that employers could opt to keep it the way it was before the pandemic and not have to deal with any of the changes and not have it impact nexus going forward.

Bonner: So that would have implications both for the employee and for the employer, wouldn’t it?

Sherr: Yes, definitely, the employee would continue their withholding and liability to where the work location was before the pandemic. So that’s what our suggestion is. And a few states have adopted that policy. I think it’s D.C., Massachusetts, Minnesota, and Mississippi, and even the city of Philadelphia, are treating the presence of the employee working in the state because of shelter-in-place restrictions as not creating nexus for the state. And Massachusetts, Mississippi, New Jersey, and Pennsylvania are allowing the withholding and liability based on the location prior to the pandemic for their remote workers.

Bonner: Do you ever feel like keeping track of 50 tax jurisdictions is like herding cats?

Sherr: Yeah, it is just amazing. I’m keeping a chart of all the state tax guidance that’s come out since the coronavirus. And it is hundreds of pages now …

Bonner: 400.

Sherr: … and it’s even in 10-point font, so it is just a lot of guidance. Every day, it’s a different state is changing — not changing, but coming out with guidance on their interpretations of what rules they’re going to follow. And each state does it a little bit differently. It would be too much to ask that it be completely uniform and consistent.

Bonner: We will post a link to that impressive document that was 400 pages when I looked at it this morning. Not to be deterred, it has your state in there so you can go and look at just that state if you wish, right?

Sherr: Right. It’s searchable — that’s a good thing — it’s searchable, so you can kind of find what you need in it.

Bonner: And you seem to be keeping it up to date, which is quite a task, I’m sure.

Sherr: Every day, yes.

Bonner: Some of the recommendations of the TRP seem to require states to do things that I don’t think they’ve ever been able to do, to request that they have email transmissions of documents and returns. I don’t think even the federal government allows electronic images of signatures, does it?

Sherr: Actually, the IRS is allowing it for collections issues; in order for them to get their money, they have come out with some temporary guidance. On March 27, they issued a memo internally that’s now public that does at least help IRS at the collections level with these signatures.

Bonner: I see.

Sherr: Six states are allowing, as of now, electronic signatures. My home state of Maryland, as well as Massachusetts, Mississippi, New Jersey, New York, and Pennsylvania, are all saying you can either make a scan of a signature or a photocopy, and that would be sufficient for their purposes.

Bonner: Really? So maybe that will become a permanent feature after the coronavirus pandemic is over.

Sherr: I don’t know, New York is limiting it till May 9. So we’ll see if they allow it beyond that.

Bonner: That would be nice, wouldn’t it?

Sherr: Yes.

Bonner: Another recommendation has to do with extending limitations periods for appeals, audits, refund claims.

Sherr: Yes, we think that the state tax authorities should stop sending out automated notices, should stop any of the enforcement activity that they had before, during the pandemic, and any audits, exams, appeals, protests, they should wait until 90 days after the pandemic ends until they pick things up again. I think they need time to get their acts together, and [taxpayers] will need it as well. Another issue that we thought for 90 days [after the pandemic] is if the statute of limitations expires during the pandemic, then they should have 90 days after the pandemic to finish up filing prior-year refund claims that might still be outstanding [and expired during the pandemic].

Bonner: That would be important for many businesses which are not operating in their normal mode these days, and they don’t have all their management accounting staff, presumably, their tax staff, to stay current with this, perhaps?

Sherr: Right, I can give you some states that have stopped their collections as of now. It’s Georgia, Maryland, Minnesota, Mississippi, and Pennsylvania. And Georgia and New Jersey have extended the statute of limitations for refund claims. So a few states are coming out and starting to issue guidance on that.

Bonner: And I believe you said that states are still coming out with additional guidance on special measures having to do with coronavirus response.

Sherr: Yes, every day, another issue is coming up that they are dealing with. I think they’re trying to be as flexible as possible. It’s just some states are quicker and more organized, and it’s easier to get out the guidance than in other states, it’s more of a bureaucracy.

Bonner: I noticed also that personal protective equipment, or PPE, donations of them in at least one or two states can be favorable for state taxes. Tell us more about that.

Sherr: I guess it’s to encourage more donations, which we desperately need in health care places. And everybody needs personal protective equipment, especially health care workers. We think that states and local jurisdictions should allow an exemption from the sales and use tax for these donations that would encourage more people to donate to a charity or to a government entity. And Indiana is the one example where they did come out with such an exemption. So more states should consider that. We’re hopeful.

Bonner: Yeah, I believe I read that California is allowing one from sales and use tax, but only for purchases by the state of California.

Sherr: That was convenient.

Bonner: Yeah, I guess so. You mentioned earlier, I think, state tax collections. I’m sure that would be a hard sell for a department of revenue to hold in abeyance all its enforcement activities; do you mean all enforcement activities?

Sherr: Yes. It’s not realistic to meet in person now and for clients to be able to meet with their advocates and people to help them through the enforcement activities. They really need to stop now. And a lot of the notices are time-sensitive and require signatures and things like that. And the departments of revenue are not available to meet and do things. So it’s really difficult to do that. We do want that to stop. And IRS has come out and said, I think they have — there’s a special initiative; I forgot what it’s called, [the IRS People First Initiative] where they’re stopping their enforcement activity, as well.

Bonner: When taxpayers and members of the AICPA look to figure out what their particular state is doing with coronavirus response, where can they look, what are some references and resources they can take advantage of?

Sherr: Sure. We have a COVID-19 webpage that’s under aicpa.org/advocacy/tax/covid-19.html, and all the resources are there that you can find everything. The state tax filing guidance chart is there. We also have the state due dates chart and a federal due dates chart that people might be interested in. And again, aicpa.org/covid19tax; you can find it all there.

Bonner: OK, and we’ll be sure to have this available to our listeners on our website along with the audio of this interview. Is there something else that we need to know about state taxes and coronavirus response?

Sherr: Just that the AICPA’s supporting the state societies, and if anybody wants to get involved at the state society level, I’m sure the state societies could use all the help they can get with any of these tax issues. And the state societies — I’ve been very impressed; they’re in touch with the departments of revenue and the governors, and they’re able to at least let them know there are issues that need to be addressed. And the departments of revenue have really been good. We’re working with the Federation of Tax Administrators; I’m in touch with them. And with COST, the Council on State Taxation, and TEI, the Tax Executives Institute. We’re all working on these state tax issues, trying to help taxpayers and practitioners.

Bonner: That’s good to note that AICPA is not doing this in a vacuum. I appreciate all this information, Eileen, and wish you well with continuing to track all the state tax developments, along with the TRP members, and their coronavirus response guidance.

Sherr: Sure, thank you for talking to me.