January 6, 2016
We have received preliminary data from tax agencies concerning California's income tax collections in December 2015. The data indicates that income taxes came in above the Governor's May Revision projections for the month of December. Those May Revision projections essentially were adopted as part of the state's 2015-16 budget package in June 2015. (When the Governor releases his 2016-17 budget proposal on Thursday, January 7, it will, consistent with standard practice, include new revenue projections, thereby rendering the May Revision projections obsolete.)
Personal and Corporate Income Taxes Combined $1.3 Billion Above Last May's Estimates. As shown below, combined personal and corporate income taxes for the 2015-16 fiscal year to date (as of December 31) are running $1.3 billion above the May Revision estimates. This is up about $600 million from last month, due largely to personal income taxes exceeding projections by $537 million during the month of December. Corporation taxes also were above projections by $61 million. December is when many high-income taxpayers make fourth-quarter estimated payments and begin to receive year-end bonus payments. Estimated payments and bonuses continue into January. Therefore, December and January--along with April and June--are the four largest income tax months of the fiscal year.
Sales tax collection data for December is not yet available. It will be available within a few days.
Looking Ahead... As noted above, the Governor's May Revision estimates will be replaced with updated estimates under the new budget plan the administration will release on Thursday. But, a look at the May 2015 estimates provides indications of why our office projected in November (in our Fiscal Outlook main scenario) that 2015-16 revenues would exceed those May Revision totals by $3.6 billion. While personal income tax withholding has exceeded 2014-15 levels by 7.4 percentage points for the 2015-16 fiscal year to date, the May Revision estimates assumed that withholding would exceed 2014-15 levels by only 2 percentage points over the next six months. While gross December collections at the Franchise Tax Board (largely quarterly estimated payments) were up over 14% from last December, the May Revision assumed that January 2016 estimated payments (when the remainder of 2015 estimated payments will be received) will be up just 3.7%. No one can know for sure what will happen in the stock market and other parts of the economy in the new year, but the evidence to date suggests that 2015-16 revenues will remain well above the Governor's prior projections.
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This post was updated at 6:15 pm on January 6 to reflect minor updates to preliminary income tax totals.