- Elizabeth Larson
- Posted On
Local governments face impacts from sales and use tax deferral
Last week, among a number of measures meant to help address the economic fallout from COVID-19, Gov. Gavin Newsom signed an executive order to allow the California Department of Tax and Fee Administration to offer a 90-day extension for tax returns and tax payments for all businesses filing a return for less than $1 million in taxes.
As a result, small businesses will have until the end of July to file their first-quarter returns. The order also extends the statute of limitations to file a claim for refund by 60 days to accommodate tax and fee payers.
Then, on Thursday, Newsom said the state is allowing small businesses to defer payment of sales and use taxes of up to $50,000, for up to 12 months.
Sales and use taxes are key sources of revenue for local governments.
At Thursday night’s Clearlake City Council meeting, City Manager Alan Flora reported the governor’s actions on sales and use tax to the council, explaining that he had just gotten word about it.
Flora called it “pretty shocking”
Although it may be helpful for businesses now, “It’s going to be a big problem for folks when it has to be paid,” Flora said.
Likewise, Flora said it will be an “enormous burden” for local jurisdictions like the city.
“I don’t know what to say other than that. It’s something that’s very surprising to see,” said Flora.
Flora said the deferral has him worried, explaining that the city annually receives about $400,000 from use tax like transient occupancy tax, or bed tax, and the city already is likely to receive very little from that revenue source.
“It’s going to be a real challenge for us,” he said.
The action is raising concern with other leaders in the community, who are trying to better understand what the governor’s order may entail.
“Cities were not given any heads-up that the State was going to announce a sales tax relief,” Lakeport City Manager Margaret Silveira told Lake County News in an email.
“The City is awaiting word from the State if there is going to be any backfill for the cities. This would be a devastating blow to our revenues, if there is no assistance,” Silveira said.
Similarly, County Administrative Officer Carol Huchingson said she has questions and concerns.
“Sharing of information regarding the State’s implementation of these particular deferrals remains in a very preliminary stage, but deferral of any tax payments certainly has the potential to significantly affect the County General Fund,” she said via email. “We are monitoring several indicators of County revenues, at present. “With no final guidance on what support will be provided from Federal and State funds, and uncertainty surrounding how long California will be affected by COVID-19, for example, it is not possible to entirely estimate the impact.”
Huchingson added, “This type of uncertainty informed our seeking Board approval to defer detailed budgeting for next year to September, and our approach has been consistent with statewide best practices.”
Last Tuesday, Huchingson went to the board with the plan to use the current year’s budget numbers as a starting point for next year’s budgeting process, with staff to make adjustments in the lead up to the recommended budget hearings on June 9 and the final recommended budget hearings on Sept. 23 and 24.
On Thursday Flora suggested a similar budget process to the Clearlake City Council, recommending very minimal changes to the current budget, which would be amended.
He said it remains to be seen how revenue streams will be impacted
Flora said a lot of restaurants, which are large sales tax generators, are not operating, but he said he’s seen initial numbers on sales tax for major retailers that indicate they are up more than 40 percent.
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