Tax in the COVID-19 Recession: Get Ready for a SALT Shake-Up

It may be too early to predict precisely how state and local tax authorities will adjust policy to cover massive pandemic-driven expenditures. But it’s not too early to take steps to moderate the potential impact of these looming changes on your business.

A new Tax Notes article I co-wrote with Michael Bernard, Vertex chief tax officer, looks at three actions that tax leaders can take today to help their organizations respond with agility once the great state and local tax (SALT) shake-up begins. These steps include:

1. Recognizing how the depth and duration of the recession will affect the timing of future fiscal and tax policy adjustments. It is evident that we can no longer hope for a V-shaped recovery. That time has passed. Instead, we are heading for a more drawn-out, double-dip, W-shaped climb back to economic health. Although we are still in the midst of the persistent first wave of COVID, a possible second wave will have a direct effect on the economic recovery delay. As such, companies may have just a bit more time before legislatures start rolling out policy changes.
2. Assessing the range of fiscal and tax policy levers for which government leaders are most likely to reach. The good news: states’ rainy-day funds had reached all-time highs just before the onset of the epidemic. The not-so-good news: It likely won’t be enough. In addition to tax rate increases and more aggressive audits, states may turn to new types of taxes, such as sales taxes on traditional personal and professional services.
3. Considering how you can influence state and local tax policy decision making. While your organization may not be among those large enterprises that can call on a dedicated government relations function, there are many ways to influence policymaking that don’t require large amounts of time or resources. Consider getting involved with Chambers of Commerce or your state and county departments of economic development, which often request feedback and frequently take positions on basic economic and tax matters. Or look for nonprofit research-based organizations that represent corporate taxpayer interests while sharing insights on tax policy with state and local rule makers.

For more details, Michael and I cover a lot more ground on all of these topics in the previously mentioned article.