LOS ANGELES -- California's governor on Thursday said small businesses can keep up to $50,000 in sales tax receipts for the next year as the COVID-19 outbreak has forced people to stay home and many shops to close.
The move means businesses with $5 million in sales or less will get up to a year to give the state up to $50,000 in sales taxes they collect from customers. It's essentially an interest-free loan aimed at keeping small businesses afloat in a state where the governor has ordered everyone to stay home to prevent the spread of a virus that has so far killed 233 people.
The action could have a significant impact on state and local budgets, as sales taxes make up a big part of government bank accounts. State officials could not say how much it would cost over the next year, noting the only money lost would be interest payments. As of Thursday, at least 20,000 businesses had asked the state for a 90-day delay in sales tax payments.
“It’s good to be able to give them a short-term loan of sorts to help them with their cash-flow issues,” said state Assemblyman Phil Ting, chairman of the Assembly Budget Committee. “However, I am concerned that at some point the state is going to have cash-flow issues itself.”
The action comes as more than 1.9 million Californians have filed for unemployment benefits since March 12, an average of more than 111,000 claims per day over the last week.
“The economic consequences are profound,” Newsom said.
California is in its second week of a statewide lockdown, where schools and nonessential businesses are closed and the governor has ordered people to stay home. The sales tax relief Newsom announced Thursday is one of a series of government actions aimed at calming mounting financial anxiety across the state. Also on Thursday, Newsom ordered water systems not to shut off service for non-payment.
California has more than 10,646 confirmed COVID-19 cases, according to data compiled by Johns Hopkins University. The state has had 233 deaths, including a 15-year veteran of the Riverside County Sheriff's Department who left behind a wife and four children.
Californians can leave their homes for essentials, like grocery shopping or doctor's appointments, leading to packed shopping aisles where it is hard for people to stay six feet away from each other. Public health officials have recommended people wear masks in those situations. But Newsom said it was not a requirement, because he didn't want to exacerbate the shortage of masks and other protective gear for health care workers.
“Masks are not a substitute for physical distancing,” Newsom said. “We have been very clear, if you are going into an environment where physical distasncing is all but impossible, for example into a grocery store with small aisles and a long queue, that we do believe it would be additive and beneficial to have a face covering.”
Business groups cheered Newsom's sales tax relief, saying it “means more dollars in their cash register that they can use to pay utilities, keep their doors open and take care of their extended family of people that work for them," said John Katabeck, state director of the National Federation of Independent Business.
But local governments worried the sales tax deferment could cost them precious revenue they need to respond to the COVID-19 outbreak.
“Counties face dire cash flow challenges due to COVID-19 costs to protect communities and cannot absorb a significant loss of sales tax revenue that would directly impact funding for public safety, public health and behavioral health services,” said Graham Knaus, executive director of the California State Association of Counties.
At least one source of local tax money has not been touched: property taxes. State officials have given Californians an extra three months to file their state income taxes. But the state has not budged on an April 10 property tax deadline. Newsom said Thursday local governments have asked him not to waive that deadline because it is such an important source of revenue for them.
For those looking for work, the state has partnered with three companies — LinkedIn, Salesforce and Bitwise — to launch a website matching people with job listings in California. Newsom said the website, onwardca.org, already has more than 70,000 job listings. Most are in the health care, agriculture, logistics and grocery industries — essential businesses not affected by the statewide “stay-at-home” order.