November 17, 2022
October collections from the state's “big three” tax revenues—personal income, corporation, and sales taxes—came in far ahead of Budget Act assumptions. Collections totaled $10.7 billion, whereas the Budget Act assumed $3.7. This entirely erased the underperformance of recent months, putting big three collections up $2.1 billion for the fiscal year to date. These unexpectedly high October collections, however, are not indicative of better-than-expected revenue performance for 2022-23. In fact, a closer look at the collections data shows the recent trend of weakening continued. The October variance instead arises from a timing issue related to the newly created elective pass-through entity (PTE) tax.
The administration anticipated a large amount of income tax refunds ($9.7 billion) would be paid in October, related to delayed claiming of credits for elective PTE payments for tax year 2021. However, only a small fraction ($2.1 billion) of the assumed refunds materialized in October, as it turns out the majority of taxpayers already had made timely claims of their credits back in April. The result is an artificial boost of $7.6 billion to the October collections total, which is not indicative of underlying revenue performance. The October numbers instead tell us that 2021-22 (a year in which the state saw historically high revenue growth) was even stronger than previously assumed.
A closer look at subcomponents of collections more indicative of current underlying revenue health suggests that the recent trend of weakening continued in October. Specifically, income tax withholding came in 7 percent below the Budget Act projection for October and is down 10 percent from projections for the fiscal year to date. Similarly, sales tax collections are down 8 percent from projections for the fiscal year to date.