GSI Analysis: Doubling of Corporate Tax Revenues Insufficient to Offset Sagging Personal Income Tax Results

•  YTD collections lag state’s growth rate projection

• Gross Income Tax declines YTD by 3.9%

• Unprecedented $3 billion in income tax revenue expected in April

• Corporate Business Tax Collections Double YTD on new 11.5% rate

The Department of the Treasury reported March revenue collections yesterday. Fiscal year-to-date total collections of $21.098 billion are up $947.7 million, or 4.7 percent, above the same period last year and continues to lag the state’s revised annual growth projection of 7.7%.

“Although strong corporate business tax revenues are boosting the state’s bottom line, the ongoing weakness in income tax revenue continues to be a cause for concern,” stated GSI’s president Regina M. Egea. “As we approach the tax filing deadline, income tax revenue continues to significantly lag projections, while the state is projecting record revenue for this month.”

In the detail, this current revenue report from Treasury shows that Corporate Business Tax (CBT) revenues are significantly outperforming expectations but that cannot make up the shortfall in Gross Income Tax (GIT) collections.  And of particular note, expectations for April GIT collections are an unprecedented $3billion. As a reminder, in the Governor’s Budget Address just last month the Gross Income Tax (GIT) growth rate was adjusted downward from an expected +5.4% to +3.5% thus lowering revenue expectations by over $400 million.  At the same time, Corporate Business Tax (CBT) collections were revised upward by $662 million, and the CBT for banks and financial institutions was revised upward by $126 million.

Gross Income Tax (GIT)

Gross Income Tax collection growth continue to underperform and in fact YTD declined by (3.9%). Even accepting the state Treasury’s “adjustments” for Gross Income Tax, the YTD growth of 1.8% is only half of the annual expected growth rate, thus doubling down on the expectations that April results will produce unprecedented results.

As reference, Treasury reported April collections in both FY 2017 and 2018 were $2.3 billion in GIT.  In order to get on track for their revised 3.5% growth, Treasury would be expecting to collect over $3 billion this month.

 Corporate Business Tax (CBT)

At the same time, under the increased 11.5% tax rate implemented this year, CBT collections have doubled (up 101% YTD) producing a high not seen in recent years of nearly $2.2billion March YTD.  And the CBT for banks and financial institutions is up over 280% producing almost $150 million in new growth year over year from just this source.