Bullet points on why states should enact legislation in 2020 and 2021 to have tax returns and extensions due one month after the federal due date and extension:
- In general, due to the complexity of the many federal tax computations, federal returns are filed at, or very near, the federal original and extended due dates. Because state returns often are dependent on the federal returns and state adjustments are needed, additional time is needed to submit a complete and accurate state return.
- State filing an additional month after federal filing provides time for taxpayers and practitioners to accurately calculate state allocation and apportionment.
- Taxpayers avoid the need to file state returns using estimates and a second filing of amended state returns based on complete federal return information, reducing administrative burden on taxpayers and tax preparers.
- State tax authorities avoid the need to process multiple returns for the same taxpayer, reducing additional burdens on state agencies.
- Changing the filing deadline should not affect the tax payment deadline, and therefore, should not impact state revenue. If changing the time of filing involves payment issues, the state could make a separate fifth tax payment date for the final tax payment that is normally due at the original due date of the state tax return.
- Specific issues that involve time for taxpayers and practitioners to accurately calculate state allocation and apportionment include:
- Although the majority of the states start their taxable income base with line 28 or line 30 of federal Form 1120, U.S. Corporation Income Tax Return, many of the items of income and deductions necessary to arrive at federal taxable income are subject to modification by state statute. Of particular significance are the alternative depreciation methods and complex transactions that occur between members of affiliated groups filing consolidated Federal income tax returns
- Many states subject the modified tax base for multistate taxpayers to allocation and/or apportionment under a three-factor formula of property, payroll, and gross receipts to determine the percentage of a corporation’s income subject to tax in a particular state. Much of the data needed to calculate the apportionment percentages comes from company sources outside the tax preparation function and is usually reconciled to the complied federal income tax return information.
There is one pager, model legislative language and a chart of examples and links to sample states’ legislative and administrative language models of states with original and/or extended due dates one month after federal due dates for each type of taxpayer for you to refer to as possible models.
Advocacy Efforts on one-month penalty relief for 2019 extended state tax return filing
The AICPA notes the challenges CPAs and firms are facing with the upcoming filing deadline. Some CPAs (and other organizations – COST, TEI and FTA) have suggested guidance is needed for penalty and filing relief for 2019 state tax returns. Impacted state CPA societies may want to consider working with their tax authority to adopt the attached draft guidance. The AICPA supports this effort and wanted to share this draft guidance with you as a resource. It would provide an additional month for filing extended state tax returns for 2019 returns only. This guidance would not impact the tax payment deadline, and therefore, would not impact state revenue.
The reason CPAs are seeking relief is because the Coronavirus pandemic has impacted taxpayers, practitioners, and state tax authorities in 2020 and Coronavirus relief federal and state legislation and continued implementation of the Tax Cuts and Jobs Act (TCJA) is still in process. The late, and potential lack of, guidance from state authorities has resulted in added compliance complexities for 2019 tax returns. Once the federal return is filed, additional time is needed to consider and calculate state allocation and apportionment issues before the taxpayer can file the state tax return. If filing relief is not provided, taxpayers may need to file 2019 returns based on estimates and then file amended returns. State tax authorities would need to process multiple returns for these taxpayers.
Impacted state CPA societies may want to consider working with their state tax authorities to request that they consider appropriate guidance. This sample bulletin is available for your use in this process.
The states that are most likely affected are those states with extended due dates for:
- Partnerships and S corporations – prior to Oct. 15
- Estates and trusts income tax (fiduciaries) – prior to Oct. 30
- Individuals and corporations – prior to Nov. 16
- Tax-exempt entities – prior to Dec. 15.
View a map of potentially impacted states detailing all the states’ action.
There is a summary chart of states’ responses on this issue for 2020 filings of 2019 returns.
Six states (Delaware, Idaho, Kansas, Maine, New Jersey, and Vermont) are providing automatic one additional month filing relief for corporate extended state tax returns filed by Nov. 16, 2020.
Four states have extensions beyond 11/16/20 including:
- Arizona corporate and individual extended returns are due by 1/15/21 (and fiduciary returns by 12/30/20) if a federal extension from 7/15/20 was filed, but if efiling, return should be efiled by 10/15/21 as AZ system linked to federal efile system that often shuts down after 10/15/21.
- Iowa is providing that extended corporate and other returns that were originally due by July 31, 2020 this year are due by January 31, 2021, six months automatic extension if 90% of taxes paid by July 31, 2020.
- New York provides extensions until 4/15/21 upon filing extension requests.
- Oregon provided 100% penalty relief for 2019 returns for personal income, corporate income, and corporate excise. 100 percent penalty waivers on 2019 income tax due from businesses that are impacted by COVID-19, 100 percent interest waivers on 2019 income tax due from small businesses that are impacted by COVID-19 and that have less than $5 million in gross receipts, continuing to provide extended payment plans of up to 36 months for any taxpayer impacted by COVID-19 when entering into an approved payment plan.
Ten states (Alabama, Georgia, Mississippi, Missouri, Nebraska, North Carolina, Rhode Island, Tennessee (also one additional month proposed legislation), Utah and West Virginia) have responded that they will consider granting relief on a case-by-case basis for corporate extended state tax returns filed by Nov. 16, 2020, and the taxpayer requests in writing abatement of late filing penalties due to reasonable cause.
States that responded last year to a similar request for corporate filing relief are italicized if they provided case-by-case relief for extended corporate returns and in bold if they provided corporate automatic one-month filing penalty relief.
Potentially impacted state CPA societies include: Alabama, Arizona, Arkansas, California (non-corp), Colorado, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky (non-corp), Maine, Maryland (non-corp), Massachusetts, Minnesota (non-corp), Michigan (non-corp), Mississippi, Missouri, Nebraska (non-corp), New Jersey, New Mexico, North Carolina, North Dakota (non-corp), Ohio (non-corp), Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont (non-corp), Virginia (non-corp), and West Virginia.
Bullets points on why one month filing penalty relief is needed:
- Because the Coronavirus pandemic has impacted taxpayers, practitioners, and state tax authorities in 2020 and Coronavirus relief federal and state legislation and the Tax Cuts and Jobs Act (TCJA) implementation is still in process, the federal government and many state tax authorities have recently issued (or still need to issue) guidance for return filings.
- This delay in guidance adds to the complexities for CPAs and clients, as the federal returns are necessary for state return calculations.
- In addition to the policy changes and delayed guidance, the physical changes in forms (due to TCJA) are lengthening the compliance process both for the federal and state returns.
- Without penalty and filing relief available, taxpayers may need to file 2018 state returns using estimates and then file amended state returns, creating additional compliance burdens for taxpayers and tax preparers.
- In turn, state tax authorities would need to process multiple returns for the same taxpayer, creating additional burdens on state agencies.
If you would like more information or support with this effort, contact: