|Budget Issue:||Big Three state taxes above projections in March. Personal income taxes strong.|
|Finding or Recommendation:||Provides report on March 2011 personal income, corporation, and sales and use tax collections based on preliminary agency cash reports|
This is our monthly update on General Fund "Big Three" revenues: the personal income tax (PIT), sales and use tax (SUT), and corporation tax (CT).
Summary. March was a strong month for PIT collections. PIT withholding has remained strong, suggesting—as we indicated last month--that job growth and wage and salary growth might be better than indicated by official labor market estimates. Unlike in February, when PIT refunds soared far above the administration's monthly estimates, PIT refunds were far below the administration's estimates in March. Meanwhile, CT revenues continue to be weaker than administration estimates—trending to be more consistent with our lower estimates for this revenue source in the 2010-11 fiscal year. SUT collections are trending close to administration estimates.
Overall, driven by the strength of PIT collections, March "Big Three" revenues were $977 million above administration estimates. For the fiscal year to date, Big Three collections are now running about $2 billion above the administration's estimates.
As always, April will be a key month for state revenues, as a large portion of PIT payments and refunds are processed. As much of April's collections consists of volatile, hard-to-predict PIT and CT revenue, April results can prove to be hundreds of millions or even billions of dollars higher or lower than projections.
Personal Income Taxes. The Franchise Tax Board's (FTB) preliminary reports show that net PIT revenues in March 2011 totaled $2.22 billion, which was $1.35 billion (154.7 percent) above the administration's monthly forecast. For the fiscal year to date, net estimated PIT revenues are $33.6 billion—up $4.6 billion (15.8 percent) from this same point in the prior fiscal year and $2.6 billion (8.5 percent) above the administration's fiscal-year-to-date revenue forecast.
PIT withholding in March 2011 was $3.9 billion—up $347 million (9.8 percent) from March 2010 and $450 million (13.1 percent) over the administration's forecasted total for the month. Under current law, PIT rates upon which withholding is now based are lower than they were in 2010 due to the expiration of the February 2009 temporary PIT increases. All else being equal, this would tend to depress withholding by about 5 percent compared to 2010. Given that withholding in March was nearly 10 percent above 2010 levels, this suggest that wage, salary, and other activity underlying PIT withholding was about 15 percent stronger in March 2011, compared to March 2010—a very good, if perhaps unsustainable, number suggesting that job growth and wage and salary growth might be better than official labor market estimates.
PIT refunds in March 2011 totaled $2.15 billion—up $446 million (26.2 percent) over March 2010 but $953 million (30.7 percent) below the administration's monthly forecast. (In other words, net state revenues for the month are better than the administration projected, in part because refunds were much less than expected.) As we discussed in recent updates, PIT refunds are expected to be way up this year due to the first full year of increased PIT withholding rates occurring in 2010. PIT refunds were far above projections in February and are now far below projections in March. Refunds will be a key variable to watch in April PIT totals.
Estimated and other final/miscellaneous payments for PIT totaled $521 million in March 2011--$32 million below forecast.
Corporation Taxes. CT revenues totaled $1.57 billion in March 2011—up $47 million (3.1 percent) from March 2010 but $423 million (21.3 percent) below the administration's monthly forecast. Final payments from corporations for tax year 2010 were low, and estimated payments for 2011 were near the expected level. (April, however, is the first major estimated CT payment for the 2011 calendar year.)
For the fiscal year to date, CT receipts are $5.7 billion, down $140 million (2.4 percent) from the same point in 2009-10 and $605 million (9.6 percent) below the administration's forecast for the current fiscal year to date. Our February forecast projected that 2010-11 CT receipts would be over $1 billion below the administration's fiscal year forecast, so at this point, this tax is trending more toward our forecast than the forecast of the Department of Finance.
Sales and Use Taxes. Preliminary General Fund SUT revenues reported by the State Board of Equalization (BOE) in March were $1.94 billion—down $71 million (3.5 percent) from March 2010 and $54 million (2.9 percent) above the administration's monthly forecast.
For the fiscal year to date, SUT revenues total $19.75 billion--$76 million (0.4 percent) below the administration's estimate for the same period.
Overall, "Big Three" Revenues Above Monthly Estimates. Overall, preliminary Big Three revenues for March 2011 were $977 million (20.6 percent) above the administration's monthly estimates. For the fiscal year to date, combined Big Three revenues are now $1.96 billion (3.4 percent) above administration estimates.
Methodology.The FTB and BOE reports upon which this update is based are "agency cash" reports. Agency cash differs from "Controller's cash" (reported in monthly state cash flow statements) based principally on the timing of receipts. Agency cash—not Controller's cash—is used for state budgetary forecasting and reporting purposes.