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COVID-19 is impacting many aspects of everyday business, and state taxes are not immune. The Eversheds Sutherland State and Local Tax team has put together the following list of considerations that businesses may want to keep in mind from a state and local tax perspective as the Coronavirus crisis continues to play out.
State Tax Incentive Packages
Some state and local officials are looking to large corporate taxpayers for ideas on how to retain employees and incent investment. We are working with taxpayers to identify options that accomplish these goals that take into account current fiscal conditions.
Valuation – Taxpayers should consider whether they may have reason to decrease the value of their assets for property tax purposes. Even if assets are not impaired for book purposes, taxpayers may be entitled to substantial reductions in value. Taxpayers should review the property tax lien dates for each state. While most states have a valuation date of January 1, there are some states with non-January 1 lien dates where action may be required in 2020. Otherwise, taxpayers should consider any impact based on their January 1, 2021, lien date.
Credits and Incentives
Incentive Agreements – Some employers may have difficulty meeting near-term capital and employment commitments under negotiated incentive agreements. We are assisting taxpayers with revising incentive agreements—including avoiding clawbacks—by invoking force majeure and material adverse change clauses often associated with such agreements. Taxpayers may have opportunities to request relief or renegotiate certain deals.
Nexus & Apportionment – Employees working from home may generate nexus exposure for employers. One employee working from home within a state has the potential to trigger nexus for income tax and/or sales tax purposes. Working from home arrangements may also impact sales, property, and/or payroll apportionment factor calculations.
State courts, legislatures, and administrative agencies have either fully or partially closed to the public or are otherwise operating in a reduced capacity. As a result, it is likely that we will see tax return due dates postponed and court filing deadlines or time requirements modified or temporarily suspended. Taxpayers currently under audit should consider state requests to extend statutes of limitations.
COVID-19 is likely to impact taxpayers for 2020 and beyond. Businesses may generate unexpected net operating losses in 2020 or have significant unforeseen expenses. However, following the Tax Cuts and Jobs Act, nearly all states will not permit a carryback of net operating losses and instead will allow taxpayers to use 2020 losses only against future income. Further state tax considerations will likely arise as the Coronavirus crisis unfolds. Taxpayers should check into this space regularly for additional crisis-related updates and to learn how to best posture themselves for a positive state tax outcome in 2020.