Storm-driven tax delays worsened California’s deficit. Newsom wants control over deadlines

Gov. Gavin Newsom’s administration is asking the Legislature to give it more control over when Californians pay their state taxes, an issue that stems from tax return delays due to severe weather.

Atmospheric rivers in early 2023 brought rain and floods to California. That prompted the federal and state governments to delay tax filing deadlines by more than six months, a maneuver budget experts said played a part in the state’s deep budget deficit.

A new proposed trailer bill – legislation related to the state budget written by the administration – would shift the authority to align with federal tax delays from the Franchise Tax Board to the state’s Director of Finance.

The trailer bill comes after Newsom presented his revised budget proposal, which aims to fill an estimated $27.6 billion deficit through cuts, spending delays and drawing from the rainy day fund.

Newsom did not mention the trailer bill during his budget presentation, but blamed the storms for “this blackout period that beguiled all of us.”

The Internal Revenue Service repeatedly delayed California’s federal tax filing deadline last year after winter storms battered the state and caused flooding in dozens of counties. Tax deadlines in 55 of California’s 58 counties were first postponed from April 18, 2023 to May, then October, with the deadline ultimately falling on Nov. 16, 2023.

Those tax extensions left the state “flying through a fog without some critical instruments,” said Department of Finance spokesperson H.D. Palmer.

“Normally, April is the biggest month for tax receipts in California,” Palmer said. Because of the postponed tax deadlines, “we had to wait for more than half a year for that critical cash data. That substantially threw off our ability to forecast revenue for California.”

The administration has described last year’s IRS tax delay, which applied to more than 99 percent of California’s taxpayers, as “overly broad.”

The proposal would also allow the state to grant deadline extensions to individual taxpayers who can prove they were adversely impacted by a disaster through letters from FEMA or the Small Business Administration, insurance claims, police reports or other documentation.

“It’s our preference to conform (to IRS deadlines) when possible so we don’t have two different sets of deadlines for tax filers,” Palmer said. “What our experience over the last two years has shown is that we need to be able to have the ability to make adjustments when the delays are proposed.”

State lawmakers who head the Assembly and Senate Budget Committees did not immediately respond to questions about the proposal.

The Legislature will consider the trailer bill as part of the state’s budget package this spring. Lawmakers are required to pass a balanced budget by June 15.