By Steve Haner
The latest complaint against the Northam Administration’s response to the COVID-19 pandemic is failing to provide adequate state tax relief. The complaint comes from the Tax Foundation and surfaced in a news report in Wednesday’s Fredericksburg Free Lance-Star. The Richmond Times-Dispatch has now chimed in with an editorial.
Apparently most other states have matched the new (and temporary) federal income tax filing deadline of July 15 rather than April 15. Virginia has delayed the deadline for paying any taxes still owed for 2019 from May 1 to June 1. But the 2019 income tax returns are still due on May 1, and the common complaint is that since Virginia taxes are based on your federal adjusted gross income, you need to know your federal AGI figure to file.
“Virginia has done the least to help taxpayers with delayed filings or delayed payments than any other state,” said Jared Walczak, director of state tax policy with the Tax Foundation.
Walczak said although Virginia requires that state tax returns be filed by May 1, the payment deadline has been extended until June 1. But even with an extension on tax payments, Walczak said interest starts to accrue on the amount you owe.
“Virginia is the only state in the nation that is doing that,” said Walczak. “Everywhere else, there is at least some relief on both filing and payment deadlines.”
Walczak knows Virginia, having formerly served as legislative aide to state Senator Mark Obenshain, R-Harrisonburg, and his insights on tax policy matters around the United States are always useful. Tax Foundation’s website has a wealth of information on fiscal responses to COVID-19 and how to leverage the benefits.
With all due respect, I find these complaints about Virginia’s inaction on taxes hollow. Despite the option to delay the process, the vast majority of us should file and pay on time – state and federal. Virginia needs the cash. It cannot mirror federal practices of spending money is doesn’t have and may never have.
Yes, unemployment is rushing to new records, thousands of businesses have shut their doors, and some individuals may benefit from additional time to file and pay. But all must ask, is it worth the interest expense? Even under the federal changes, the same amount of taxes are eventually owed. Remember, this is about what people or businesses earned in the tax year that ended December 31. Estimated taxes for 2020 income are still due on the same schedule, and payroll withholding continues, right?
Most of us are not unemployed or are already retired, and many businesses are continuing to operate. Most taxpayers have no need to delay, and of course plenty of people file early and have their refunds in their accounts already. At the time of the state announcement on March 20, my first thought was this is not really lowering anybody’s taxes and unless interest and penalties are waived, why take advantage of it?
If I’m reading the state documents correctly, if you don’t want to file an income tax return on May 1, you simply need to request an (automatically granted) six-month extension to file and then, if you think you will owe additional taxes, pay that estimated amount by June 1. Easy.
The Tax Foundation didn’t mention sales and use taxes, but the state also offered a one-month delay to retailers on remitting those taxes, from March 20 to April 20. That extension is allowed only if approved on a case-by-case basis, and again, there will be interest due if you delay. My thought at the time was also, so what? Any retailer who takes that cash and uses it to make payroll, gambling that 30 days later the skies will clear, is taking a huge risk.
The federal and state governments have thrown more money at COVID-19 than with any previous financial shock, with little thought it seems. It is starting to look like the Jubilee year in Leviticus, where all debts and obligations are forgiven. Are we sure everybody seeking a mortgage payment deferral really needs it? Will nobody be taking unfair advantage of the moratorium on evictions (which don’t remove the debt, just delay the consequences)? Is every business piling into the bank for those forgivable loans really in desperate straits, or do some just want a cash cushion?
On that last one, we may see stories one day that plenty of those loan recipients did not need the money, but they sucked it up before businesses that needed it worse got their applications filed. From what I’ve read, it is first come, first served. There is no hard and fast “but for” requirement, as in “but for this loan I definitely would lay off my staff.”
Eliminating taxes, or cutting them, would permanently put cash into people’s hands. That little-understood $1,200 per person, $500 per child payment most of us are about to get is really a 2020 income tax cut, paid now rather than at the time we file our 2020 returns in a year. People who don’t understand refundable tax credits are about to get one, many of us not actually needing it.
A similar state tax cut would put cash into consumer hands, but Virginia cannot afford to do that now. Frankly, I’m surprised it was willing to delay the tax filing and payment process for income taxes or sales taxes at all. These filing and payment delays just shuffle the accounting, slightly to taxpayers’ benefits and the state’s detriment. The taxes are still due in full and a good rule is: Always pay first the people who can seize your house or car.
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