If California extends state tax deadline to October like the IRS, can it still pay its bills?

However due to good financial situations, larger tax charges and new legal guidelines, consultants say California has sufficient inside sources to tide it over till Oct. 16 if the FTB postpones deadlines and most of the people who owe cash wait that lengthy to pay.

“It’s unlikely that pushing deadlines to October would lead us to working out of cash to pay the payments,” mentioned Brian Uhler, a deputy analyst with the California Legislative Analyst’s Workplace. However “it might make it tougher for the Legislature to place collectively the finances plan in June.”

Suspending tax deadlines till October would push tens of billions of {dollars} from the 2022-23 fiscal yr, which ends June 30, into 2023-24.  “The primary influence of extensions can be prolonging the uncertainty policymakers are already going through round what revenues they’ll should work with within the coming fiscal yr,” Moody’s analyst Emily Mandel mentioned in an e-mail.

The private earnings tax makes up about 61% of state normal fund revenues. This contains taxes from people and from sole proprietorships, partnerships, S companies and restricted legal responsibility firms that file enterprise earnings on private tax returns.

About 70% of non-public earnings taxes arrive year-round through payroll withholding and can be unaffected by a deadline change.  “That cash we’re nonetheless getting,”  Uhler mentioned.

The remaining comes from funds folks make once they file their tax returns and from estimated tax funds that many individuals with enterprise, funding or retirement earnings make 4 occasions a  yr. (In most years, folks can file a federal or state tax return as late as mid-October, however nonetheless should pay any taxes due by the April deadline or danger getting a late-payment penalty. The IRS announcement delays each the submitting and cost deadline till Oct. 16.)

State finances watchers maintain an in depth eye on April receipts as a result of they sometimes account for 15% to 19% of complete private earnings tax revenues, in keeping with the California Division of Finance. Final yr, the state collected $25 billion in April.

In January, the IRS gave folks dwelling in federally declared catastrophe areas that coated most of California (together with each Bay Space county) and elements of Georgia and Alabama a bit extra time.

It gave these folks till Might 15 to file their 2022 tax returns and make funds that might have been due April 18, and to make quarterly estimated tax funds usually due in January and April. The brand new deadline additionally utilized to numerous enterprise returns usually due on March 15 and April 18.

The FTB conformed to those self same deadlines for California taxes. 

On Friday, the IRS threw the state an even bigger curveball. It postponed not solely these deadlines, but additionally the deadlines for estimated funds due in June and September, till Oct. 16.

The FTB says it’s reviewing the most recent IRS announcement and when it has info to share, will publish it on ftb.ca.gov.

Earlier this yr, the state estimated that the shorter postponement till Might 15 “might shift about $20.9 billion of mixed January-April tax income into Might,” together with a $19.3 billion shift in private earnings tax, David Hitchcock, a senior director with S&P International scores, mentioned in a report.

California has all the time confronted cash-flow imbalances as a result of it has to pay payments all yr however its revenues are lumpy. Earlier than 2015, it normally borrowed cash from traders by promoting income anticipation notes or RANs early within the fiscal yr and paying them off late within the yr, after the majority of tax revenues had are available in. 

Since then, two actions “helped to extend the state’s money cushion” and made RAN issuance pointless, H.D. Palmer, a spokesman for the state finance division, mentioned through e-mail.  In 2009, the Legislature handed a number of legal guidelines that broadened the record of “internally borrowable funds.” In 2014, voters handed Proposition 2, which up to date the foundations governing the Funds Stabilization Account (higher often known as the wet day fund) and created the Public Faculty System Stabilization Account. It additionally made these reserves accessible for borrowing.

“These two actions — mixed with vital income will increase lately and prudent finances and money administration insurance policies — have meant that the state has had ample sources readily available which have made exterior money movement borrowing pointless,” Palmer mentioned. 

On the finish of January, the state had $32.7 billion generally fund money and $126.5 billion in unused borrowable sources. If the state have been to push the tax cost deadline into October, “It’s actually our hope and expectation that our traditionally excessive money sources will proceed to be enough in order that RANs won’t should be issued,” Palmer added.

In California, the highest 1% of taxpayers account for about half of non-public earnings tax revenues, and they’re more likely to pay in October if the FTB lets them. “The individuals who pay the millionaire’s tax will most likely defer,” mentioned Karen Krop, senior director at Fitch Rankings (which like The Chronicle is owned by Hearst Communications).

She and Hitchcock confused that any deferral would have an effect on the timing, however not the quantity of tax revenues collected.  The massive influence can be on budgeting.

“With the inventory market down and tech exhibiting some pressure, however on the identical time wage development nonetheless sturdy, California’s already in a troublesome setting for forecasting earnings tax revenues,”  Mandel mentioned.

An October tax deadline “would additionally make it tougher for (lawmakers) to make particular coverage adjustments,” mentioned Chris Hoene, govt director of the California Funds & Coverage Heart. 

For instance, if the state needed to develop entry to meals help or well being care at a value of $50 million a yr, although it’s not an enormous quantity, it is perhaps exhausting to do as a result of the “knee-jerk response can be let’s say no to something that provides to expenditures” as a result of there are “simply too many unknowns,” Hoene mentioned.

This isn’t the primary time tax deadlines have been prolonged. In 2020, federal and state tax deadlines have been delayed till July 15 for everybody due to the pandemic, however that was solely half a month into California’s new fiscal yr.  State earnings tax funds acquired in July 2020 “have been scored on a budgetary foundation” as having been acquired in fiscal 2019-20, which ended June 30, 2020, Palmer mentioned.

Attain Kathleen Pender: kathpender84@gmail.com; Twitter: @KathPender