California taxpayers in major cities such as San Francisco and Los Angeles may see a significant decrease in their 2020 locality tax liabilities as a result of the state’s shelter-in-place order. To the extent employers’ workers are working from a shelter location outside of the city limits of San Francisco or Los Angeles, city apportionment and hence tax due may significantly decrease in 2020 for these localities. However, to the extent workers are in a shelter location in another California location, or out of state, there could be additional state and local tax filing requirements and payments due in 2020 that will need to be tracked and calculated.
Businesses in San Francisco and Los Angeles may see decreases in tax liabilities in 2020 as a result of the shelter-in-place work orders that directly impact the time spent by employees performing services in both cities. Taxpayers should document their workforce’s shelter-in-place locations, and consider formal apportionment studies in anticipation of increased audit scrutiny of lowered apportionment factors.
While the shelter-in-place order may result in a decrease of businesses’ locality taxes in San Francisco and Los Angeles, it could create new filing obligations in other California localities that also have gross receipts taxes, payroll taxes and headcount taxes. As 2020 progresses, companies located in San Francisco and Los Angeles should monitor how city governments shape new tax policy in response to the COVID-19 pandemic.