March 27th Morning State Tax Update

Progress on State Budgets for Fiscal Year 2021

Florida legislators unanimously approved a basic budget March 19, which dedicates $300 million in reserve funds, plus additional general funding both this fiscal year and next, to respond to COVID-19. However, Gov. Ron DeSantis (R), who has line-item veto authority, has said he plans to wait to make decisions on the budget until COVID-19-related revenue impacts and needs become more apparent.

In Kentucky, the House and Senate each passed its own budget earlier this month, but members of the conference committee met this week and have said certain spending cuts will need to be considered. A new revenue forecast is unlikely to be available by the April 1 deadline by which the budget is expected to pass. In lieu of a new forecast, legislators plan to use the previous forecast’s most pessimistic estimates as the baseline for rewriting the two-year budget. These estimates give the state $12 million less to work with for the remainder of fiscal year (FY) 2020, $115 million less in FY 2021, and $174 million less in FY 2022.

State Legislative Session Changes

Over the past two weeks, most states have made significant changes to their legislative sessions due to COVID-19. Several states, including Connecticut and Michigan, after initially suspending their legislative sessions to a set date, have further postponed their next meeting day. Other states, after suspending their sessions for a brief time, have reconvened for various purposes.

Ohio’s House and Senate met this Wednesday to pass COVID-19 response legislation, with plans to meet again March 31. Vermont suspended its session for a little over a week but met this Tuesday and Wednesday to pass COVID-19 response legislation. The General Assembly will reconvene today.

Arkansas, with a month-long 2020 fiscal session that is not set to begin until April 8, convened yesterday for a special session to create a new rainy day fund, with $173 million specifically dedicated to COVID-19 response efforts. To comply with social distancing guidelines, the House and Senate met in separate locations, with the House meeting in the athletic facilities at the University of Arkansas instead of in the House Chamber’s tighter quarters.

Income Tax Filing and Payment Deadline Changes

Illinois and Maine are now among the states that have extended their income tax filing deadlines. As of yesterday afternoon, 36 states and the District of Columbia have extended their income tax deadlines. Virginia is the only state for which the extended deadline applies to payments only, not to filing. As such, Virginia’s filing deadline remains May 1 (Virginia’s usual Tax Day), but taxpayers now have until June 1 to make payments. Oklahoma initially postponed its payment deadline only (keeping its filing deadline at April 15). However, the state has since issued an updated announcement postponing both deadlines to July 15. Among the states that levy a tax on individual wage income, only five states—Massachusetts, Michigan, New Jersey, Ohio, and West Virginia—have not extended their deadlines (although a bill to extend the Ohio deadline awaits the governor’s signature).

States that choose not to extend their own deadline to July 15 negate much of the benefit of the federal extension, as taxpayers draw heavily from federal Form 1040 to file their state income taxes. Most state fiscal years begin July 1, so some states have expressed concern that extending their payment deadlines into the new fiscal year will result in too much revenue shifting from one fiscal year to the next. To mitigate the impact, Rhode Island is looking into short-term borrowing or transferring revenue between accounts. Vermont’s Chief Fiscal Officer has said the state’s tax deadline extensions will result in an expected revenue shift of $145 million from this fiscal year to the next.