DOR released its January revenue report Tuesday afternoon, just as the latest snow event commenced. There was a blizzard of good news in the report as revenues came in at $2.053 billion, up $208 million or 11.3 percent from January 2010.
Collections were strong across the board, with the only below benchmark collection (other than income tax refunds paid) in corporate and business tax, for which January is a small month anyway.
Two tax types — sales and income tax cash estimated payments — are worthy of a closer examination.
Sales tax reported in January reflects December activity, since sales tax is reported on the 20th of the month following. Regular sales tax (excluding meals and motor vehicles) collection was up $21 million or 6.1 percent from January of a year ago. That is a sign of consumer confidence in a recovering economy.
Income tax cash estimated payments are made when taxpayers have experienced an unexpected gain in income, most frequently, from the sale of stock or some other asset that is reported as a capital gain. It was a precipitous drop in capital gains that triggered the massive falloff in revenue collection in FY09, when the collection fell from $20.88 billion in FY08 to $18.259 billion in FY09.
FY11 is seeing a modest recovery in this area. For the first seven months of the current fiscal year, income tax cash estimated payments total $1.199 billion, up $239 million or 24.9 percent from the same period a year ago.
There are a couple of theories on this increase. One is that some investors, not knowing if the Bush-era tax cuts would be extended or eliminated, sold off assets in 2010 to avoid paying a higher tax in 2011 (a scenario that did not come to pass when President Obama agreed to extend the tax cuts.) If this indeed happened, the state would see an increase in estimated payments. The other possibility is that as the economy recovers, and investors recover, they are selling stocks to realize capital gains, and having to pay tax on those gains.
When all is said and done, the state has collected $1.091 billion more than in the same seven months a year ago. The return of income from capital gains is playing a part in that. How much of these estimated payments will be reclaimed as refunds in April, when taxpayers "true up" their returns, remains to be seen.
(Editor's note: For a review of capital gains collections, see page 20 of the Consensus Revenue Hearing briefing book for FY12.)