Capitol Police Officer Lykesia Smith observes the House chamber in a nearly empty gallery at the Capitol in Jackson, Mississippi, on March 17. (AP)
State revenue officials are so alarmed that the Federation of Tax Administrators, which represents tax agencies but generally keeps a low media profile, took the rare step of issuing a strongly worded statement.
"The budget issue is difficult, but the loss of cash flow is creating the larger crisis," the FTA said.
States count on receiving billions of dollars — anywhere from $30 billion to $50 billion — from quarterly and final payments in April, the federation said. Officials forecast those payments and apply the estimated money toward the budget, including paying out refunds and funding Medicaid. Now at least some of that money will not be there.
"Indeed, we now anticipate that large amounts of it will not be collected, ever," the FTA said. "We expect many sole proprietorships and individuals will no longer have the cash to make their tax payments by mid-July, and after that we will be dealing with bankruptcies and the permanent loss of those revenues."
Verenda Smith, deputy director of the FTA, said the group felt compelled to speak out given the gravity of the situation.
"Sometimes things get so bad you want the world to understand what is actually happening," Smith said.
After previously moving the payment deadline, Treasury Secretary Steven Mnuchin announced Friday that the 2019 tax return filing deadline for individuals and businesses would be moved from April 15 to July 15 in light of the coronavirus pandemic. States, most of which conform to the Internal Revenue Service when setting filing and payment dates, have responded quickly the past few days, but Smith said many were taken by surprise.
"We thought we knew what was happening earlier in the week," Smith said. "We thought there was a simple extension of time to pay for those who had a balance due … then suddenly, on Friday, everything changed. Many states felt like the change took away their options, legally, politically, technically."
James Nash, a spokesman for the National Governors Association, said this will be an unprecedented tax and budget year.
"We're in uncharted territory," Nash said.
States are already bracing for revenue losses from the personal income tax, withholding, sales tax and gas tax, according to Brian Sigritz, director of state fiscal studies for the National Association of State Budget Officers.
"Now the extension of the federal tax deadline is going to be another revenue hit as some of that money will be pushed to fiscal 2021," Sigritz said. "States are trying to do their best forecasts — the shift in the federal tax deadline added an extra curve."
The IRS did not immediately respond to a request for comment from Law360.
--Editing by Tim Ruel.
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