Numerous state and local jurisdictions have responded to the COVID-19 (“coronavirus”) outbreak by providing relief to taxpayers, primarily through extended filing and payment deadlines. We expect that many more jurisdictions will issue guidance in the coming weeks, particularly because the federal government recently announced its 90-day income tax payment extension plan.
The World Health Organization has officially declared the coronavirus outbreak to be a pandemic. In addition to the cost on human life, the rapid spread of COVID-19 has left a trail of economic damage affecting business revenues. COVID-19 has caused complete or partial shutdown of factories, supply chain disruptions, and labor shortages, and has impacted demand in certain industries. This impact will also be felt by U.S. state, and local governments.
Baker McKenzie attended the U.S. Supreme Court’s oral arguments yesterday in South Dakota v. Wayfair, Docket No. 17-494. At issue in the case is whether the Court should abrogate the physical presence nexus standard that it first articulated in National Bellas Hess v. Dep’t of Revenue, 386 U.S. 753 (1967), and later affirmed in Quill Corp. v. North Dakota, 504 U.S. 298 (1992). The Court’s decision could have a profound impact on sales and use tax nexus in the United States by altering the limitations currently imposed on a state’s ability to require out-of-state retailers to collect such tax.
With the 2017 Tax Cuts and Jobs Act (“Tax Reform”) fully enacted, taxpayers and practitioners are racing to find last-minute planning opportunities prior to the new year, and states are looking for ways to assist their residents prospectively. The most talked about planning opportunity, currently, is prepaying property taxes for 2018 to create a 2017 tax benefit around Section 11042(a)(6), which limits the state and local tax deduction to $10,000 beginning in 2018. However, imprecise wording contained within Section 11042(a)(6) could feasibly be interpreted to permit a deduction for state and local income taxes as well – depending on how you read the provision.