California Announces Deferral of Sales & Use Tax up to $50,000 for Businesses with Less than $5 million in Taxable Sales

04.03.2020

Amid the financial turmoil brought on by the COVID-19 crisis, the State of California has moved quickly to provide wide ranging assistance to employers and small businesses impacted by COVID-19. One of the newest measures taken by the State of California, which was announced by Gov. Gavin Newsom on Thursday, April 2, 2020, is a so called “one year reprieve” on the payment of sales and use taxes for certain businesses.

The California Department of Tax and Fee Administration (CDTFA) will allow small businesses with less than $5 million in annual taxable sales to defer payment on up to $50,000 of sales/use tax. Such deferrals will be interest free.

Unlike many of the other recent relief efforts aimed at small businesses in the form of various loans, such as the U.S. Small Business Association’s Economic Injury Disaster Loans and Paycheck Protection Loans (read more about these respective programs here and here), this sales/use tax deferral is not a loan program. Though described by Gov. Newsom as a sort of “bridge loan” for small businesses, this program does not provide additional funds to businesses, but rather, it allows small businesses to hold on to the sales/use tax funds for up to one year free of any penalties or interest.

GUIDANCE FROM THE CDTFA

The CDTFA has released the following guidance for small businesses wishing to take advantage of this deferral program.

Small Business

In general, for this sales/use tax deferral program, the CDTFA considers a small business to be one with under $5 million in annual taxable sales. However, the CDTFA recognizes that some small businesses with annual taxable sales over $5 million, especially those businesses in low-margin industries, may also need this relief. Those businesses are encouraged to reach out to CDTFA, which has stated that it will work with those businesses to provide relief where appropriate.

Contact the CDTFA

In order for small businesses to take advantage of the sales/use tax deferral relief, the business must reach out to the California Department of Tax and Fee Administration by visiting cdtfa.ca.gov or by calling 800-400-7115. As of now, no deadline has been announced to apply for this program. However, given the rapidly changing nature of the COVID-19 crisis, and the various responses thereto, small business owners may wish to reach out to the CDTFA sooner rather than later to inquire about this program.

Payment Plans

For small businesses which choose to defer sales/use tax liability liabilities (up to $50,000) under this program, such small businesses must then pay their sales/use tax due over 12 equal monthly installments. No interest or penalties will be assessed against the liability.

As for when these payment plans will begin, given that the deadline to file and pay first quarter 2020 sales and use tax returns has been extended from April 30 to July 31^st for many taxpayers, the CDTFA expects that most participating small businesses will begin their payment arrangements in late July of this year.

Deferral Amounts

The CDTFA has stated that the maximum amount that any small business can defer interest-free under this relief effort is $50,000. However, it is currently unclear whether the CDTFA will also allow small businesses to defer amounts over $50,000 with those amounts over $50,000 subject to interest. Accordingly, interested small businesses should contact the CDTFA regarding their particular situation.

Conclusion

If you have questions about how your business can take advantage of this sales/use tax deferral program, or any of the other state or federal relief programs aimed at small businesses, contact the authors and the other attorneys on the Business & Tax Team at Atkinson, Andelson, Loya, Ruud & Romo to help navigate these programs.

This AALRR publication is intended for informational purposes only and should not be relied upon in reaching a conclusion in a particular area of law. Applicability of the legal principles discussed may differ substantially in individual situations. Receipt of this or any other AALRR presentation/publication does not create an attorney-client relationship. The Firm is not responsible for inadvertent errors that may occur in the publishing process.

©2020 Atkinson, Andelson, Loya, Ruud & Romo