By: Ryan National Tax
Oftentimes during a business crisis, taxpayers overlook their obligations to pay taxes due. Some businesses that find themselves in a cash shortage forget that trustee taxes (sales and payroll taxes) are not the taxpayers’ funds but money that belongs to the government. As government property, they must be remitted timely. Failure to remit trustee taxes, many times, results in severe penalties and sanctions with little to no relief.
While many governors have invoked executive powers to extending tax deadlines during the COVID-19 crisis, these pronouncements come from their implied powers in an emergency. In most cases, the emergency powers allow the governor to suspend or extend regulations that may affect the health and safety of constituents. However, many filing and payment deadlines are proscribed by statute, and the governor may not have the ability to override statutes.
In addition, even though some states have rules extending deadlines that fall during times when the filing office is “closed” or inaccessible, taxpayers should not rely on such provisions to justify late filing during this crisis. Government revenue departments across the country have generally indicated they will remain “open”—thus able to receive tax payments and returns—even if their employees are working remotely or if their normal physical office is closed. Taxpayers should not assume COVID-19 office closures suspend filing deadlines.
It is also important to note that state-wide actions by a governor on filing extensions do not impact the taxing authority of local and municipal governmental bodies. Any extension for filings or payments must be explicitly granted by these governmental bodies.
In most cases, the respective Departments of Revenue (DORs) have the ability to waive interest and penalties for late filings, but those waivers are discretionary. These are extraordinary times that have not been considered before. When the dust settles, a legislature may not support a governor’s action to suspend or extend tax filing and payment deadlines through amending the controlling statutes. The same may hold true for DORs. Again, in most cases, each DOR has the ability to waive penalties, and sometimes interest, for “reasonable cause.” Nevertheless, the term “reasonable cause” is not usually defined. If a taxpayer had the ability to file and pay taxes due, the DOR may not find that a later filing and payment was reasonable.
To be safe, Ryan suggests that taxpayers who have the means and ability to timely file and pay tax obligations within the statutory time frame do so. If unable to do so, they should document their reasons for later filings and payments. In addition, remember that trustee taxes are funds that belong to the government and cannot be used for other purposes. Those funds should be segregated and forwarded to the respective taxing authority as prescribed.