(CN) — As the coronavirus-induced economic crisis deepens around the country and globe, California Governor Gavin Newsom will suspend payments of sales taxes that small businesses are required to give to the state for a year.
“It’s a one-year reprieve for small businesses,” Newsom said Thursday during what has become a daily address.
Ordinarily, small businesses collect the sales taxes they accumulate throughout their year and pay the lump sum to the state at a given date. Some pay quarterly, semi-annually or annually.
Newsom said the state will allow small businesses to keep up to $50,000 of generated sales taxes for up to a year as a bridge loan to keep them afloat when broad swaths of the state, national and global economies are effectively shuttered.
“Our small businesspeople are the ones putting everything on the line and taking risks in ways large and small,” Newsom said.
Sales taxes in California are collected by the state treasury, which then distributes the allotments due to counties and cities. The lack of sales tax revenue has the potential to hinder public sector operations in the near and long term.
“The January budget is no longer operable,” Newsom said. “The magnitude of the impact is just now coming into the full light of day, but we are preparing for a substantial revision to our budget.”
Newsom gave the answer in response to a question about whether California is considering offering insurance to undocumented workers. Judging by Newsom’s response, that initiative is no longer a priority given the present health crisis coupled with a dramatic decline in revenues for the state and other local jurisdictions.
Newsom also demurred when asked whether he would delay or forgive the payment of property taxes due on April 10. The short answer is no.
“The cities and counties are in trouble,” Newsom said, adding it is the local jurisdictions and not the state that collects and uses property taxes to fund their various operations.
Failing to collect property taxes in the short term could inhibit the ability of cities and counties across the state to provide services and continue various operations, including their departments of public health.
“(Local jurisdictions) have asked us not to impose any mandate or dictate from on high unless the state would be able to backfill the dictates of that mandate,” Newsom said.
In other words, counties and cities have asked Newsom not to delay property tax payments unless the state could pay for the losses incurred to their respective budgets, an unlikely prospect given the state must wrestle with its own significant deficits.
However, the prospect also means many Californians who have recently lost their source of income will be forced to pony up what often amounts to sizeable property tax payments in the next eight days or else face substantial penalties.
Newsom touted the federal programs offering small business loans and promised to ramp up capacity in the state’s employment division. The state typically takes 21 days to process unemployment claims in normal times but given that 1.9 million Californians have filed for unemployment since March 12 it could be a while before residents start seeing checks.
“The economic consequences are profound,” Newsom said.
Newsom, who like many officials giving daily press briefings about the global pandemic, has been reluctant to offer a glimpse of what the endgame for California looks like.
Shelter-in-place orders have been extended to May 3. On Thursday, Newsom said the most recent models show the virus peaking in California in mid-May, meaning it could be well into the summer months before Californians gain anything approaching a semblance of normality.
