State & Local Tax Impacts of COVID-19 for California – 2020

Thoughtware Alert Published: Dec 11, 2020 | Updated: May 05, 2021
SALT GOV COVID TW - 1

Information current as of December 31, 2020.

COVID-19 has changed life across the globe. Many taxing jurisdictions are taking mitigating actions to create social distance and aid taxpayers. The following is a running list of actions by jurisdiction, which generally result in additional time to file and/or pay. Further, many jurisdictions have closed their offices to in-person use by taxpayers and suspended their audit and administrative functions. This alert doesn’t cover similar waivers from local-level taxing authorities. These developments continue to quickly evolve; check with your BKD Trusted Advisor or visit our COVID-19 Resource Center for current information as needed.

Information Specific to California

  • The Employment Development Department (EDD) announced that employers may request up to a 60-day extension of time from the EDD to file their state payroll reports and/or deposit payroll taxes without penalty or interest.
    • Emergency and Disaster Assistance for Employers, March 1, 2020.
  • The penalties and interest provisions applicable to the taxes and fees administered by the Department of Tax and Fee Administration are suspended for a period of 60 days after the date of the order for any taxpayer who’s unable to file a timely return or make a timely payment.
    • Governor’s Executive Order N-25-20, March 12, 2020.
  • The Franchise Tax Board (FTB) extended the March 15 tax filing and payment deadline to July 15.
    • FTB News Release, March 20, 2020 (supersedes the March 13, 2020, notice).
  • California is extending the Franchise Tax Board’s deadline by 60 days for annual report submissions to the Legislature for corporate income, individual income and trust income tax purposes; allowing for the suspension of the California Department of Tax and Fee Administration’s (CDTFA) requirement of a request for an extension and the filing for up to three months for individuals or businesses filing returns for less than $1 million in tax; extending by 60 days the date to claim for refund for excise, sales and use taxes administered by the CDTFA; extending by 60 days the time to file an appeal with the Office of Tax Appeals; and providing authority to the Department of Alcoholic Beverage Control director to suspend the deadlines for renewing licenses and license renewal penalty fees.
    • Governor’s Executive Order N-40-20, March 30, 2020.
  • California counties will cancel penalties and other charges for homeowners, small businesses and other property owners who are unable to pay their property taxes due to COVID-19, as determined on a case-by-case basis.
    • California State Association of Counties Notice, April 4, 2020.
  • California is exempting masks, personal protective equipment, and other critical materials that protect public health from sales and use tax when sold to or purchased by the state of California for the duration of the state of emergency.
    • California Department of Tax and Fee Administration Special Notice L-745, April 13, 2020.
  • California is waiving penalties for property taxes paid after April 10, 2020, for homeowners and small businesses that demonstrate they have experienced financial hardship due to the coronavirus pandemic through May 6, 2021. The deadline to file business personal property statements is extended from May 7 to May 31, 2020, with full waiver of penalties.
    • Governor’s Executive Order N-61-20, May 6, 2020.
    • California SBE Letter to Assessors No. 2020/024, May 7, 2020.
  • The CDTFA updated its website for extended due dates for quarterly, monthly, and fiscal year annual filers; procedures to request an extension to file returns or prepayments for tax liabilities of $1 million or more; 60-day extensions for filing a refund claim or a tax appeal; and procedures for larger taxpayers to request relief.
    • California Department of Tax and Fee Administration, May 25, 2020.
  • California has postponed the unclaimed property reporting deadlines for life insurance companies to submit their Holder Notice Reports from April 30, 2020, to June 30, 2020, and the 2020 Holder Remit Reports and Remittances for life insurance corporations will be due between February 1 and February 15, 2021. In addition, the June 1 to June 15 period for holders to submit their reports and remittances for properties reported on 2019 Notice Reports is extended from June 1, 2020, to August 15, 2020.
    • California State Controller Newsletter/Notice, June 1, 2020.
  • The California FTB clarified that the value of sick, vacation or personal leave that employees elect to forgo in exchange for amounts paid by their employers before January 1, 2021, to organizations that aid victims of COVID-19 is excludable from an employee’s income for state income tax purposes. Electing employees may not claim a charitable deduction for the value of the donated leave.
    • California FTB FAQs for COVID-19 Tax Relief & Assistance, June 26, 2020.
  • The CDTFA clarified that a separate COVID-19 surcharge a business adds to a customer’s bill is subject to sales tax. A surcharge, whether it’s a flat fee or a percentage of the selling price, generally is subject to tax when separately added to a taxable sale, unless a specific exemption or exclusion applies.
    • CDTFA FAQs, July 6, 2020.
  • California clarified that taxpayers can combine the first and second quarterly estimated franchise tax into one payment, which is due on July 15. However, if taxpayers’ combined estimated tax payment is more than $20,000, they must make all future payments to the FTB electronically, but taxpayers may request a waiver of the electronic payment requirement by completing FTB 4107.
    • California FTB FAQs for COVID-19 Tax Relief & Assistance, July 8, 2020.
  • The CDTFA announced that small business taxpayers with less than $5 million in taxable annual sales can take advantage of a 12-month, interest-free payment plan for up to $50,000 of sales and use tax liability under small business relief payment plans. Taxpayers must fully pay all payment plans by July 31, 2021, to qualify for zero interest. The relief only applies to sales tax due on returns between March 1 and July 31. Taxpayers can request the plan through the CDTFA’s online services system, and there’s additional information regarding the plan on the department’s website FAQs.
    • California Department of Tax and Fee Administration Notice, July 1, 2020.
    • California Department of Tax and Fee Administration Tax Pub. 422-PPTH, July 1, 2020.
  • California has extended the deadline to issue a decision on any pending property tax assessment appeal until January 31, 2021. The deadline extension provides that a County Board of Equalization or Assessment Appeals Board may render a final determination by January 31, 2021, for any appeal application that was timely filed prior to March 4, 2020, and with a two-year deadline that falls between, and including, July 31, 2020, and January 31, 2021.
    • Governor’s Executive Order N-72-20, July 31, 2020, and California SBE Letter to County Assessors No. 2020/036, August 4, 2020.
  • The California Office of Tax Appeals (OTA) issued information regarding its current operating procedures to provide publicly accessible and transparent tax appeal hearings that comply with the California governor’s Executive Order regarding social distancing measures for individual income, corporate income, trust income, excise, and sales and use tax purposes. Taxpayers desiring a hearing can opt for 1) online oral hearing held using videoconferencing technology; 2) online oral hearing using teleconferencing technology; or 3) determination based on the written record without an oral hearing. The OTA will advise taxpayers of these options in writing. Prior to the hearing date, the OTA will provide all parties with detailed instructions regarding the use of the taxpayer’s chosen form of hearing. The OTA will continue to livestream and/or post on its website these remote, electronic hearings so the hearings remain publicly accessible and transparent. 
    • California Office of Tax Appeals Legal Notice 2020-02, August 1, 2020.
  • California legislation mirrors the federal tax treatment of forgiven PPP loans that are part of the federal coronavirus relief law. Therefore, the canceled debt is excluded from state income tax and the portion of forgiven loans used for payroll and business expenses are not permitted to be used as a business expense deduction.
    • California A.B. 1577, Laws 2020, effective September 9, 2020.
  • California legislation mirrors the federal treatment of retirement account loans in line with the CARES Act. Individuals who borrow up to $100,000 from their 401(k) retirement accounts won’t face state tax penalties if they repay the loans within five years under a new state law. Without the law, the second $50,000 of the loan would be considered a distribution subject to income tax and early withdrawal penalties.
    • California A.B. 276, Laws 2020, effective September 11, 2020.
  • California won’t tax an out-of-state corporation whose only connection to California is an employee teleworking in California due to Executive Order N-33-20 (California pandemic stay-at-home order issued on March 19, 2020). In such instances, California won’t treat the corporation as actively engaging in a transaction for financial or pecuniary gain or profit in the state. California also won’t include the compensation attributable to the employee in the computation of the payroll threshold for doing business in the state. In addition, an employee teleworking in California due to the order won’t cause an out-of-state corporation to exceed the protections of P.L. 86-272. This tax treatment will continue to apply until the order is no longer in effect.
    • California FTB COVID-19 FAQs, September 11, 2020.
  • California has further extended individual income, corporate income, and trust income tax filing and payment deadlines due to COVID-19. The extended deadlines for calendar-year filers include 1) October 15 for individuals, partnerships, LLCs taxed as partnerships, single-member LLCs owned by another entity, estates and trusts, LPs, and LLPs; 2) November 16 for LLCs taxed as corporations, C corporations, and exempt organizations (Forms 199 and 109); and 3) September 15 for S corporations and for single-member LLCs owned by an S corp, partnership, or LLC taxed as a partnership. 
    • California FTB, COVID-19 Extensions to File & Pay, September 22, 2020.
  • California advised that businesses directly affected by COVID-19 can request up to a 60-day extension to file state payroll reports and deposit state payroll taxes without penalty or interest. The department must receive a written request for the extension, noting the effect of COVID-19, within 60 days from the original delinquent date of the payment or return. 
    • California Employment Development Department FAQs, October 1, 2020.
  • California updated its COVID-19 frequently asked questions (FAQ) by adding to the section on “Teleworking and the 'Stay at Home' Executive Order,” which provides guidance as to the possible California franchise tax implications to corporations that previously had no connections with California but now have an employee indefinitely teleworking from California due to the governor's executive order that requires all California residents to stay at home to prevent the spread of COVID-19. California will not treat an out-of-state corporation whose only connection to California is the presence of an employee who is currently teleworking in California due to Executive Order N-33-20 as being actively engaged in a transaction for the purposes of financial or pecuniary gain or profit. Further, California will not include the compensation attributable to an employee who is currently teleworking due to Executive Order N-33-20 in the minimum payroll brightline nexus threshold. Last, California will not treat an out-of-state corporation as exceeding the protections of P.L. 86-272 for California franchise tax purposes if it has an employee who is currently teleworking in California due to Executive Order N-33-20 (these activities will be deemed de minimis).
    • California FTB FAQs, October 19, 2020, and applicable until Executive Order N-33-20 is no longer in effect.
  • California is providing limited relief from the obligation to pay state unemployment insurance tax, state disability insurance tax, and the employment training tax. Wages of nonresident employees who typically perform services in another state for an employer located outside of California will not be subject to these payroll taxes if those employees are temporarily performing services within the state due to COVID-19. If a worker remains in California performing services after the resident state or federal public health officials have ended stay-at-home orders and the worker could have resumed working at their normal work location outside California, the worker and the employer will be considered subject to the California taxes.
    • California Employment Development Department FAQs, October 23, 2020.
  • California provided guidance concerning residency and the income tax implications for nonresident individuals working within the state temporarily due to COVID-19. Employees working for a non-California employer but temporarily teleworking from California have California-source income during the period they performed services in state. Employees working for a California employer who temporarily telework in California have California-source income during the period they performed services in state. Independent contractors who temporarily work in California should source their income based on where the benefit of the service is received. 
    • California FTB FAQs, October 29, 2020.
  • California will provide an automatic three-month payment extension for taxpayers filing less than $1 million in sales tax on their returns and extend the availability of existing interest- and penalty-free payment agreements to companies with up to $5 million in taxable sales; broaden opportunities for more businesses to enter into interest-free payment arrangements; and expand interest-free payment options for larger businesses particularly affected by significant restrictions on operations based on COVID-19 transmissions.
    • Governor’s News Release, November 30, 2020, and California Department of Tax and Fee Administration News Release (NR 20-15), December 1, 2020.
  • California is suspending the Department of Tax and Fee Administration’s requirement of an actual extension request for up to three months for individuals or businesses filing sales/use tax returns for less than $1 million in taxes or fees. The suspension is effective after December 15, 2020, and remains effective through the reporting or payment of taxes or fees that are due on or by April 30, 2021.
    • Governor’s Executive Order N-84-20, December 14, 2020.
  • California clarified its suspension for filing sales/use tax returns for less than $1 million in taxes or fees. Qualifying annual filers scheduled to file returns in January 2021 or April 2021 are now extended to April 30, 2021, and July 15, 2021, respectively. Qualifying quarterly filers scheduled to file fourth-quarter 2020 and first-quarter 2021 returns are now extended to April 30, 2021, and August 2, 2021, respectively. Qualifying monthly filers scheduled to file returns with an original due date between December 15, 2020, and April 30, 2021, have been extended for three months. Interest and penalties will not accrue provided the returns are filed by the revised filing dates for all taxpayers. Vehicle dealers that are required to remit sales tax to the Department of Motor Vehicles starting January 1 must continue to pay the tax with their vehicle registration application within 30 days from the date of sale of the vehicle, even if they qualify for an extension to file their returns with the CDTFA. International Fuel Tax Agreement returns won’t receive an automatic extension for filing a return but must request an extension, which will be evaluated on a case-by-case basis.
    • California Department of Tax and Fee Administration FAQs, December 15, 2020.
  • California will not require original signatures for filing paper returns and other documents for corporate income, individual income, and trust income tax purposes filed through June 30, 2021, except for powers of attorney. The FTB accepts two signature alternative methods for paper returns: 1) an attached document that must be included with the filed return that provides a copy of the original signature; and 2) a paper return with a faxed signature on the signature page.
    • California FTB COVID-19 FAQs, December 23, 2020.
  • California won’t 1) treat an out-of-state corporation whose only connection to California is the presence of an employee who’s currently teleworking in California due to the governor’s stay-at-home order as being actively engaged in a transaction for financial or pecuniary gain or profit; and 2) include the compensation attributable to an employee who’s currently teleworking due to the stay-at-home order in the minimum payroll threshold. 
    • California Franchise Tax Board (FTB), COVID-19 FAQs; December 31, 2020.

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