Congress went to work fast to get money in the hands of Americans and businesses. Or, at least they tried. Out-dated computer systems, shelter-in-place
In the first three Coronavirus bills, we see what the government
The first bill is more about research and treatment of Coronavirus. If you’re in that business, then you’ll want to make sure you’re following that.
For most small business owners and real estate investors, the next two bills are the most important. Let’s see what CoronaTax has to say about it.
The focus of these next two bills is:
- Keeping you employed (if you currently have a job),
- Keeping your employees working (assuming you have a business)
- If you can’t work now (or your business can’t), getting you income fast,
- Providing sick & paid leave for your employees, with the government’s help, and
- Giving businesses special tax breaks.
The emphasis is to keep the economy working and to keep it from crashing. It means a federal deficit (which is defined as having more expenses than income), but that’s one of those things that the federal government has decided to worry about later. The federal government has several things they can do deal with the federal deficit. They can increase government revenues by raising taxes. They can sell bonds to borrow money. Or they can increase the money supply by printing money.
There are approximately 90,000 state and local governments that are responsible for police, fire, roads, education, health-care workers, airports and more. They provide all the things that you interact with in your daily life.
Their income sources are taxes such as state income tax, payroll taxes, property taxes, sales tax and the like. And with the economic recession, on its way to a depression, taxes are way down. It’s estimated that the impact for local municipalities will result in a 15% – 45% decrease in revenue.
The municipalities have fewer options available for them to make up their deficit. They can lower costs. They can raise taxes. And they can sell bonds. The last one might be a tough sale, though, because bankruptcy at the local government level is already being discussed. If you’re a bond holder that means you won’t get paid. It’s going to be hard to find people who want to invest when there’s a good chance that they won’t get paid back.
That means they must lower costs by reducing services and/or increase revenue by raising taxes.
There is a possibility of a federal bail-out, but that’s not a sure thing and with the current atmosphere of political infighting, it’s hard to say whether anything of substance is going to be provided.
Already school districts are looking at laying off anywhere from 1 in 5 to 1 in 12 teachers. Half of all cities will need to make last resort cuts to their police and fire departments. And garbage pick-up will be substantially decreased.
That’s on the expense side. When it comes to revenue, there are a couple of options. Local government can raise property tax rates and we’re already seeing that start to happen. They can increase sales tax rates and hope that people return to buying at the levels they were pre-Pandemic. They can raise income tax rates. We’re already seeing states start doing that, targeting businesses or higher income tax payers.
And, perhaps the easiest way to raise revenue and hope to get re-elected, is to look for ways to get tax money from people who don’t live in your home state or city.
In other words, we’re going to see states looking harder at outside businesses and individuals who have connection within a state in order to start charging them state and local taxes. That connection is known as nexus. It’s a word you’re going to want to remember because we’re going to hear a lot more about it as time goes on.
If you have sales tax nexus, your business is responsible for collecting and paying sales tax for sales made in other states. If you have income tax nexus, you and/or your business is responsible for filing a nonresident state income tax return and paying state income tax. If you have “other” tax nexus, you may be subject to gross receipts taxes, B & O tax, franchise tax and a whole bunch of other taxes you’ve probably never even heard of before.
We’re moving into unchartered waters right now. At USTaxAid, we’ll be watching the impact of CoronaTax so that you can ensure get you are receiving your fair share of the federal aid. And we’re going to be watching the state and local governments’ reaction to the dwindling revenue. We’ll give you strategies you can use to keep more money in your pocket and away from the tax man. Keep watch here for important information!