As state governments have closed businesses and extended tax return filing deadlines in response to the coronavirus crisis, some business groups and politicians have cited the pandemic in calling for the postponement of new tax-related policies and initiatives.
In California, conservatives are urging the suspension of a new labor law, A.B. 5, and in Oregon, businesses are asking the state to suspend the new gross receipts tax.
California's A.B. 5
California's A.B. 5, enacted in 2019, effectively reclassifies many independent contractors as employees, subjecting their employers to increased employment tax compliance obligations. The legislation was in part directed at the new app-based "gig economy," which includes ride-sharing companies Uber and Lyft. Critics argue that the legislation will burden businesses and cost gig workers and other independent contractors in the state opportunities to work. Proponents, including progressive groups and unions, counter that the law will ensure that workers get the benefits of being employees.
Assembly member Kevin Kiley (R), who has introduced bills to repeal and to provide a grace period for compliance with A.B. 5, is now urging Gov. Gavin Newsom (D) to suspend the law in light of the lockdown measures being taken to contain the spread of the coronavirus.
“At a time when most Californians can’t work outside the home, the new law is stopping many from working inside the home,” Kiley said in a March 19 Facebook post. He said workers had provided input explaining how “suspending AB 5 now would help them cope with the emergency conditions, contribute to economic activity, and perform vital public health services.”
The State Legislature is shut down until April 13, but Newsom could halt A.B. 5's enforcement. In a March 18 op-ed, the editorial board of The Orange County Register urged Newsom to suspend the legislation "right now.” Former congressman Douglas Ose, chair of the conservative Rebuild California Foundation, also proposed suspending the legislation in a letter to Newsom, arguing that A.B. 5 should be waived “at a minimum” for rural hospitals and medical clinics.
The controversial legislation has been the subject of numerous proposed bills to modify its provisions and exempt specific workers or industries, including by the bill's author, Assembly member Lorena Gonzalez (D). Ride-sharing companies are gathering signatures for a ballot initiative to conditionally exempt themselves from the law, and are also suing to overturn the law.
Notably, Gonzalez sent a letter March 23 to U.S. House Speaker Nancy Pelosi (D) and U.S. Senate Minority Leader Chuck Schumer (D) arguing that A.B. 5 provides critical protections for workers during the coronavirus outbreak. Her letter criticized a much-publicized March 23 letter by Uber CEO Dara Khosrowshahi pressing President Trump for a federal stimulus package that includes protections and benefits for independent worker such as Uber drivers, and for legislation to create a new category of workers — such as those in the gig economy — that would be defined by labor law as existing somewhere between regular employees and independent contractors.
Gonzalez said Khosrowshahi’s “third way” proposal would help companies sidestep the requirements established by A.B. 5 and shift “Uber’s massive tax obligations onto law-abiding businesses and taxpayers who are forced to shoulder the cost when misclassified workers are left without an adequate safety net.”
By contrast, with A.B. 5, California is well-positioned to provide app-based workers “with unemployment insurance benefits” and to hold gig companies “accountable for failing to contribute their fair share in the state unemployment insurance fund on behalf of their employees,” Gonzalez said.
Oregon CAT
In Oregon, business groups are urging lawmakers to suspend the state’s new corporate activity tax, a 0.57 percent tax on businesses’ annual Oregon gross receipts over $1 million (and an additional flat $250 tax on that income). The tax was approved in 2019 to help fund education-related spending.
The state has been preparing for the tax's implementation and began rolling out temporary rules in January. However, because of the pandemic, Oregon Business & Industry and around 30 other business groups sent a letter March 17 to Gov. Kate Brown (D) and lawmakers urging a variety of tax measures, including delaying the “implementation of the new Corporate Activities Tax, at least for the first quarter of 2020, so those funds can be diverted to meeting payroll and protecting jobs.” The groups also asked that the tax’s delay be extended “through the second quarter if the coronavirus crisis continues.”
Notably, legislation to modify technical elements of the tax to make it easier for businesses to comply with didn’t pass in the recently concluded 2020 legislative session. The state Department of Revenue was also forced to suspend planned meetings in various communities to explain how to comply with the tax. The DOR is urging businesses to review educational materials about the tax posted on its website. Currently initial payments are due April 30.
It’s not clear whether the CAT will be delayed, but legislators have discussed that and other proposals. A special session is also being planned.
Nikki Dobay of the Council On State Taxation told Tax Notes March 23 that the session could include legislation to adopt some of the proposed technical changes to the 2019 CAT law that failed to pass in the regular 2020 session.
“We’re very in support of that,” Dobay said.
Oregon business groups also called for additional tax relief and other accommodations, including the suspension of payroll taxes, a tax credit for restaurants and other hospitality industry businesses affected by “social distancing” efforts, tax incentives for employee retention, and tax filing deadline extensions. Business leaders have presented their proposals to Brown’s Coronavirus Economic Advisory Committee and the state legislature’s Joint Special Committee on Coronavirus Response.
Another request is for state leaders to ask “local governments either to put a hold on new tax measures, pending resolution of the coronavirus crisis, or to work with their local business communities to consider delaying or changing implementation strategies,” according to the business groups' letter to Brown.
Portland Ballot Measure
Several business groups in Portland, Oregon, unsuccessfully urged the Metro Council — the area’s regional government — to remove a measure that was recently approved for the May 19 ballot.
The ballot measure, intended to address homelessness in the area, would authorize a 1 percent marginal tax rate on personal income over $125,000 for single filers and $200,000 for joint filers beginning in 2021. It would also impose a 1 percent tax on the net profits of businesses in the region, with an exemption for businesses with annual revenue of $5 million or less.
In a March 16 letter, the North Clackamas, Tualatin, Gresham Area, and Oregon City chambers of commerce asked for the measure's removal and postponement in light of COVID-19.
“In the wake of the Governor’s Executive Order 20-05” barring large gatherings and including other measures “and guidelines for social distancing to prevent the spread of COVID-19, our leaders must focus on how to protect working families and Oregon businesses from the economic consequences of this disaster,” the letter stated. “The proposed new Metro tax on personal income and businesses . . . adds uncertainty to doing business in the Metro region at a time when our communities are looking for economic stability."
However, the council hasn’t removed the measure from the ballot. The campaign backing a new tax measure, HereTogether Oregon, put out a March 17 release condemning the request, arguing that the tax is designed to exempt lower-income earners and small businesses.
“It’s important to remember that the proposed business tax is a tax on business profits, not total income, so only those doing well while others suffer are going to see any increased taxes,” according to Metro Council President Lynn Peterson.
HereTogether Oregon noted that other business groups have supported the tax measure, including the Portland Business Alliance.
The push by business groups and some conservatives to suspend various tax measures may intensify as lockdown orders continue to hammer the nation’s economy. Other calls for pausing new tax policies and proposals because of the virus include the Illinois Business Alliance's proposal to postpone a vote on a November ballot measure to create a graduated income tax in the state.
Notably, the city council of Palo Alto, California, voted March 23 to not continue pursuing a business tax for the November ballot.
Meanwhile, business groups are generally calling for the suspension of other taxes in addition to holding off on new policies. Jason Mercier of the conservative think tank Washington Policy Center recently urged Washington Gov. Jay Inslee (D) to waive businesses’ liability for the state business and occupation tax. In California, the Howard Jarvis Taxpayers Association is advocating for late property tax payments to be forgiven.
“Property owners in 2020 should be given assurance at the state level, either by statute or, at a minimum, by executive order, that penalties will not attach to payments received after April 10th,” Howard Jarvis President Jon Coupal said in a March 22 op-ed in The Orange County Register.