We are now more than a year removed from the first reported COVID-19 case in the United States. Since then, government-forced shutdowns have rocked hundreds of thousands of businesses. When the catastrophic news hit, most business owners made the health and safety of themselves and their employees priority one.
Business concerns including taxes do not just evaporate with terrible news, however. If you owe money to the California Franchise Tax Board (FTB), you may be struggling to balance the concerns of tax collections and running a business along with the health and safety of those who work for you.
To help take some of the burden off of your shoulders I’ve written this article to walk you through the tax collections process for California businesses. It concludes with a section on the impact COVID-19 has had on this process and how the people at Brotman Law can help you with your business tax liabilities.
California FTB Business Tax Collections
Businesses that owe taxes to the FTB will receive a notice. This is the first step of the collections process. The notice is a cost-effective way for the FTB to inform taxpaying business of their rights, to gain compliance, minimize enforcement costs and ensure due process.
It will also notify the business whether there are outstanding tax issues and if so, allows a reasonable time for the business entity to comply.
- The most common notices are:
- Request for Past Due Tax Return
- Official Demand for Past Due Tax Return
- Single Period Return Information Notice
- Consolidated Return Information Notice
- Notice of Balance Due
- Past Due Notice
- Formal Demand Notice
- Final Notice Before Levy
- Notice to File Tax Returns
- Final Notice Before Suspension or Forfeiture
- Final Notice Before Contract Voidability
- Demand for Tax Return
- Notice of Proposed Assessment
The collections process cannot start without a prior notice, because without a prior notice, constitutional issues could arise. Notices are generally issued for unpaid tax, unpaid penalty, or unpaid interest.
In a handful of situations, the notice will be followed by a visit from a FTB field collector. These collectors visit business entities to encourage compliance, verify income activity, document asset information and identify assets for possible seizure or warrants.
Following types of cases will be referred to field collectors:
- Active businesses with valid addresses
- Accounts with viable assets, including multiple real estate properties
- Verified non-compliance cases
- Businesses that repeatedly pay filing enforcement assessments without filing tax returns
- Business that repeatedly refuse to file their tax returns or pay their tax balances
- Businesses that routinely abandon one business and start a new one to avoid tax liabilities
Before referring cases to field collections, the FTB must exhaust other collection actions, mainly notices. The exceptions are when an account is at risk, such a business entity liquidating assets to avoid collections, or the business entity having a significant history of non-compliance.
The FTB Collection Procedures Manual requires that there must be a viable asset in existence to justify field collection, such as a likelihood of income or a known physical asset. If the FTB determines that it is not cost-effective to pursue collection, the taxpayer will be considered discharged and the account will be considered uncollectible.
If the account is considered uncollectible, the liability still remains due but the collection action ceases. On an annual basis, accounts in collections will receive a notice to advise taxpayer entities of missing returns and unpaid liabilities.
Businesses may find themselves in this situation for a myriad of reasons, but one such reason in 2021 is likely because of the impacts of COVID-19. If you are a business who had trouble meeting their tax liability because of COVID-19, in the next section I will discuss how California is enforcing the collection process in these unique times.
COVID-19 and California Collections Procedures
Prior to July 15, 2020, there were a few special tax relief provisions related to COVID-19. These expired special tax relief provisions included:
- Various Extensions to file and pay deadlines
- Delayed collection action for:
- Personal income tax
- Business entity tax
- Non-tax debt programs
- The suspension of:
- Income tax refund offsets
- Monthly payments for installment agreements
- Non-filer compliance activities
- Extended time to protest or appeal an audit notice
Unfortunately, these tax relief provisions expired as of July 15, 2020.
As of February 1, 2021, all FTB Field Office Public Counters—Los Angeles, San Diego, Santa Ana, Oakland, and Sacramento—are open by appointment only. These offices can be utilized by taxpayers to make a payment or for tax help.
Collection actions have changed due to COVID-19. First, if you have an existing payment plan (installment agreement) and cannot comply, you may request to skip your payments. This simply means although you may request to skip payments, you could still be denied and forced to pay.
Additionally, taxpayers can apply for a payment plan if they are unable to fully pay state taxes. Taxpaying entities can find out more information and apply here.
Taxpaying entities that have tax liens filed and are trying to secure financing to cover payroll, or to pay off debts, etc., will be ruled on a case-by-case basis. This chosen analysis will allow the FTB to “evaluate each situation” and “determine whether the lien release would be in the best interest of [the taxpayer] and the state.”
No Sign of More Relief
As of February 2021, no additional COVID-19 relief is in the works for taxpayers. In fact, California lost so much revenue in 2020, there is reason to believe that collection enforcement will more than likely ramp up. Raising taxes would not be a popular move for California, so its tax authorities will be tougher with people who are withholding the “state’s” money.
Some of these employees have even moved states and this could create tax liabilities for the employer. “In some jurisdictions, even a single employee working in a state may be enough to create nexus, meaning a sufficient connection between state or municipality and a business that allows the state or municipality to impose a tax on the business.”
“In response to the coronavirus public health crisis, many states and local departments of revenue have relaxed their nexus policies so that an employee teleworking in their jurisdiction will not, alone, trigger nexus between that jurisdiction and the employer.” However, some states like Kentucky have not.
Luckily for taxpaying entities dealing with the California FTB, the updated COVID-19 FAQ says that California will not “treat an out-of-state corporation whose only connection to California is the presence of an employee who is currently teleworking in California due to the Governor’s stay at home order as being actively engaged in a transaction for financial or pecuniary gain or profit; and [will not] include the compensation attributable to an employee who is currently teleworking due to the stay at home order in the minimum payroll threshold.”
Business Per Usual?
Are crowded ICUs and mask mandates the new normal? I certainly hope not. In the current environment, I’ll reiterate that an employer’s first priority should be the health and safety of themselves, their families and employees. To make this tremendously difficult task easier, consulting with the professionals at Brotman Law can take the tax burden off a business owner’s mind.
Even as COVID-19 and all of its mutations continue to threaten lives, stunting business and industry growth, the FTB is beginning to operate as business per usual.
If the state is knocking on your door, earning a living and providing employment to others is probably more difficult than it should be. Don’t wait to deal with this a minute longer. Close the door on your debt. Call my office to get some tax relief today.