State & Local Tax Impacts of COVID-19 for California – 2021

Thoughtware Alert Published: May 03, 2021 | Updated: Aug 10, 2021

Information current as of July 31, 2021.

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

  • 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.
  • California legislation established the Rental Assistance Program for providing COVID-19 relief. The law includes a provision specifying that the assistance wouldn’t be deemed to be income for the personal income tax law or used to determine the eligibility of an eligible household or member for any state or local program financed wholly or in part by state funds.
    • California S.B. 91, effective January 29, 2021.
  • California announced that sales and use and excise tax returns due between December 15, 2020, and April 30, 2021, are extended for all except large taxpayers due to the COVID-19 pandemic. Specifically, taxpayers reporting less than $1 million in tax on a return originally due during the time frame will receive an automatic extension, and interest and penalties won’t accrue on return amounts due if taxpayers pay taxes and file returns within three months of the original due date.
    • California Department of Tax & Fee Administration, COVID-19 State of Emergency Notice; February 1, 2021.
  • California updated tax guidance for COVID-19 relief. The FTB is no longer waiving the fee for walk-through revivor requests it processes remotely. The $600 payments individuals receive from the federal government under the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 and the increase of $300 per week that individuals receive in unemployment compensation under that act aren’t subject to California income tax.
    • California FTB, COVID-19 FAQs; February 8, 2021.
  • The California FTB stated it was temporarily suspending collection activities under its Interagency Intercept Collection Program in keeping with a March 2020 executive order from Gov. Gavin Newsom directing tax agencies to offer COVID-19 relief. The FTB is authorized to use tax refunds, lottery winnings, and unclaimed property to offset debts due to other state and local government entities. Therefore, California won’t use state income tax refunds to offset overdue state debts such as parking citations, tolls, fines, and tuition through July 31, 2021.
    • California FTB Announcement; February 22, 2021.
  • California legislation establishes the California Small Business COVID-19 Relief Grant Program for corporate income and individual income tax purposes. The law includes these measures: 1) requiring the California Office of Small Business Advocate to provide grants to qualified small businesses; 2) setting procedures to recapture grant amounts if the office determines the grantee fails to meet the criteria of a qualified small business; 3) repealing provisions related to the program on January 1, 2024; 4) excluding from gross income specific grant allocations for taxable years beginning on and after January 1, 2020, and before January 1, 2030; and 5) authorizing the FTB to adopt regulations necessary and appropriate to implement the exclusions and include in audits grants excluded from gross income.
    • California S.B. 87, effective February 23, 2021.
  • California released additional information on the provision of Golden State Stimulus payments to qualified recipients, i.e., California residents generally earning less than $75,000. California will provide a one-time payment of $600 or $1,200 to those who qualify. The stimulus payments are not taxable for California income tax purposes. No action is required to receive the stimulus payment for eligible recipients. However, to receive the stimulus payment, taxpayers should file a 2020 return by October 15, 2021. Stimulus payments generally won’t be subject to offset for debts owed to the FTB or other government agencies; withholding orders; or wage garnishment.
    • California FTB, Public Service Bulletin 2021-08; February 24, 2021.
  • California will extend the California income tax filing and payment deadline for individuals to May 17, 2021. This is consistent with the federal extension announced by the IRS. The extension doesn’t apply to estimated tax payments due on April 15, 2021.
    • California FTB, News Release; March 17, 2021.
  • California announced the date for individual income taxpayers to claim a refund for tax-year 2016 has been extended to May 17, 2021. In general, taxpayers have four years to file a claim for a state tax refund in California. Tax-year 2016 state income tax returns were due in 2017, so the standard four-year statute of limitation for claiming a refund would have expired on April 15, 2021. This matches the similar IRS announcement of an extension to May 17 for individual taxpayers who are due a refund on their tax-year 2017 federal income tax returns. The IRS normally has a three-year statute of limitations to file a claim for a federal tax refund.
    • California FTB, News Release; April 26, 2021.
  • California issued information on the Golden State Stimulus payment for individual income tax purposes. The payment is a one-time $600 or $1,200 payment per tax return. The notice includes information on 1) the payment schedule; 2) qualifications for the payment; 3) the October 15, 2021, deadline to file a 2020 tax return to receive the payment; 4) the process to receive the payment; and 5) the procedure to return an erroneous payment. 
    • California FTB, Golden State Stimulus Notice; April 26, 2021.
  • California legislation conforms the state corporate and individual income tax treatment of Paycheck Protection Program (PPP) loans and Economic Injury Disaster Loan (EIDL) advance grants under the Coronavirus Aid, Relief, and Economic Security Act and the 2021 Consolidated Appropriations Act to federal tax law (with some modifications). Taxpayers may exclude forgiven PPP loans or EIDL advance grants from their gross income when computing California corporate and individual income tax for tax years beginning on or after January 1, 2019. Taxpayers who are not “ineligible entities” also may deduct business expenses paid with the proceeds of forgiven PPP loans or EIDL advance grants. 
    • California A.B. 80; effective April 29, 2021.
    • California FTB, A.B. 80 FAQs; May 28, 2021.
  • California may qualify individuals who received unemployment benefits in 2020 to receive more money from California through the California earned income tax credit (CalEITC), the young child tax credit, and the Golden State Stimulus payment. In general, the FTB will automatically determine and process the appropriate refund. Taxpayers who filed their 2020 returns, did not claim the CalEITC, reported unemployment income, and have federal adjusted gross income less than $40,201 (single) or $50,401 (married filing jointly) should see if they qualify for the CalEITC. If they qualify, they do not need to amend their tax returns but should file California Form 3514 instead. Most individuals who qualify for the CalEITC also qualify to receive a one-time Golden State Stimulus payment. Most individuals who qualify do not need to do anything to receive the stimulus payment. The FTB will issue stimulus payments after it processes the 2020 tax returns filed by eligible individuals.
    • California Franchise Tax Board, Tax News; April 30, 2021.
  • California clarified that taxpayers should not include forgiven PPP loan amounts when calculating their California limited liability company fee. California bases the fee on total income from all sources derived from or attributable to the state. As California excludes forgiven PPP loan amounts from gross income, the forgiven PPP loan amounts do not fall within the meaning of total income from all sources derived from or attributable to the state.
    • California FTB, Tax News; May 4, 2021.
  • California extended the temporary option to allow other types of signatures on paper returns or other documents that need to be filed with an original signature, except for power of attorneys, to December 31 from June 30. The FTB also will accept electronically signed statute of limitations waivers until December 31. 
    • California FTB, COVID-19 FAQs; May 24, 2021.
  • California updated COVID-19 guidance for out-of-state corporations on corporate income and individual income tax purposes. With the rescission of “stay at home” Executive Order N-33-20, out-of-state corporations may now be considered to be doing business in California and may not be protected by Public Law 86-272, depending on the teleworking activities of their employees. Under Public Law 86-272, an out-of-state corporation won’t be subject to franchise tax on the income it generates in a jurisdiction if it sells tangible personal property there and its employees’ only activities there involve the solicitation of sales.
    • California FTB, COVID-19 FAQs; July 1, 2021.
  • California legislation establishes the California Microbusiness COVID-19 Relief Grant Program and excludes grant allocations made under the program from gross income for taxable years beginning on or after January 1, 2020, and before January 1, 2023. The legislation also creates, until January 1, 2030, a California Competes Grant Program, only providing the grant to applicants who haven’t received a California Competes Tax Credit for the same jobs or investments for which the grant is allocated.
    • California S.B. 151, effective July 12, 2021.
  • California legislation provides financial relief for low- and middle-income taxpayers who were adversely affected due to the COVID-19 pandemic. The law requires the controller to make a one-time Golden State Stimulus II tax refund payment to each qualified recipient, not to exceed $1,100. The payment authorized by the bill is excluded from the gross income of qualified recipients for individual income tax purposes. The controller is prohibited from offsetting delinquent accounts with the tax rebate payment authorized by the bill.
    • California S.B. 139, effective July 12, 2021.
  • California issued information on small business relief payment plans due to COVID-19 for sales and use tax purposes. Taxpayers must apply by 5 p.m. on August 16. The California Department of Tax and Fee Administration (CDTFA) provides the following: 1) effective December 15, 2020, 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 tax liability; 2) taxpayers must pay all payment plans in full by April 30, 2022, to qualify for zero percent interest; 3) the relief applies only to tax due on returns with original due dates between December 15, 2020, and April 30, 2021; and 4) a business that previously took advantage of the 12-month, interest-free payment plan that must be paid in full by July 31 also may request to participate in this new 12-month, interest-free payment plan.
    • CDTFA, COVID-19 State of Emergency Notice, July 1, 2021.
  • California legislation authorizes a county auditor or tax collector to cancel any penalty, costs, or other charges resulting from tax delinquency upon a finding that failure to make a timely payment is due to a documented hardship, as determined by the tax collector, arising from a shelter-in-place order, as defined, if the principal payment for the proper amount of tax due is paid no later than June 30 of the fiscal year in which the payment first became delinquent. The state legislators anticipate the COVID-19 pandemic’s economic effects will continue to persist until after the delinquency deadline for the first installment of property tax payments for the 2021–2022 fiscal year has passed (that deadline is December 10, 2021) and, without the relief, state law will require county collectors to impose delinquency penalties on taxpayers and small businesses that cannot pay that installment when nonpayment results from a documented hardship resulting from the pandemic’s economic effects.
    • California S.B. 219, effective July 23, 2021.

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