Updated April 10, 2020
Looking for more information on how to navigate sales tax in California?
Last week, in response to COVID-19, California introduced a payment plan designed to provide sales tax relief to small businesses.
What is the COVID-19 California sales tax relief plan?
While details of the plan are scarce, the California Department of Tax and Fee Administration (CDTFA) announced that businesses 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 and use tax liability.
Taxpayers will be allowed to pay their tax due in 12 equal monthly installments. No interest or penalties will be assessed against that tax liability. The first payment would not be due until July 31, 2020.
While details are still scarce, you can read about the plan on the CDTFA website.
How do California taxpayers take advantage of the plan?
The plan is not in place yet, but according to the CDTFA, taxpayers will be able to request the payment plan via their online services portal in coming months.
What if taxpayers owe more than $50,000 in sales and use tax?
Taxpayers who owe more than $50,000 in annual sales tax will still be able to take advantage of the plan. However, this tax relief effort only applies to the first $50,000 in annual sales tax liability.
For taxpayers who owe more than $50,000 the state will adjust the plan and allow the taxpayer to pay off the appropriate amount of interest due toward the end of the 12-month repayment plan.
Should businesses take advantage of this plan?
We reached out to Lauren Stinson, the National Leader of Sales & Use Tax at TaxJar Pro Partner Cherry Bekaert to get her opinion on this plan. Stinson was skeptical.
“In my opinion, participating in this program is not a prudent business decision,” said Stinson. “Using sales tax to fund business operations (even in desperate times) without a plan to ensure that the business can fund the repayment will set the business up for even tougher times down the road as those taxes must be paid back. Sales tax is a trust tax and business owners will be held liable and sales tax liabilities cannot be discharged under bankruptcy. In some cases, failure to remit sales tax collected is also criminal. So, while California’s program may seem like a great opportunity for short-term cash needs, business owners should carefully consider all the consequences.”
But Jason Parr, CEO of Peisner Johnson, was more optimistic. “There is not much information on how to apply or qualify, however, this may be the most charitable CA has been in the last several years. They have been quite aggressive on eCommerce sellers, and compliance has been a complicated decision for some, especially for remote sellers selling on marketplace facilitator platforms. If a small business is having a critical cash crunch, this can be a real help,” said Parr.
“CA taxpayers already have an automatic 90-day extension to file and pay taxes from the first quarter of this year, and now that payment can be spread out over 12 months (up to $50k, that is). If you can survive without having to get into an installment arrangement with CA, then it’s better to make your full payment for the first quarter by July 31, but frankly, many small businesses are facing severe cash shortages, and this program may allow for the very bridge these companies need to survive, along with the Paycheck Protection Program provided through the Federal Small Business Administration. This new relief offered to California taxpayers, along with other states’ COVID-19 relief efforts can be real lifesavers for small businesses! I’m a fan when any tax-collecting governmental body offers relief to it’s taxpayers, especially in uncertain times like these.”
What other sales tax relief is California providing?
Currently, California is also allowing businesses to request an extension on time to file and pay sales tax. If an extension is granted, taxpayers can pay taxes due between March 15, 2020 and June 15, 2020 by June 15, 2020 and receive no penalty.
However, taxpayers must request an extension. Read all about how to request a California sales tax extension due to COVID-19 here.
Other COVID-19 Sales Tax Resources
- Sales Tax Due Dates Affected by COVID-19 – Many states have announced extensions on time to file and pay sales tax. Find out if states where you file are affected.
- All COVID-19 blog posts from TaxJar
Do you have questions or something to say about California’s sales tax relief repayment plan? Start the conversation in the comments.