April’s Tax Take Keeps California’s Revenues Above Estimates

A solid performance of California’s three primary revenue engines -- personal income (PIT), corporate, and sales taxes -- means that the State’s receipts for the first 10 months of the current fiscal year are running about $1.9 billion above projections.   Based on the Governor’s January Budget, the Controller had estimated that the three main General Fund revenues would total about $75.0 billion when the Franchise Tax Board (FTB) and Board of Equalization (BOE) stopped counting the checks last night.  Actual results showed that revenues reached $76.8 billion, about 2.5 percent higher than estimated. PIT beat projections by 2.5%, while corporate taxes exceeded estimates by 11.3%. Only sales tax receipts fell shy of estimates, although the variance was only 0.3%.

Tax receipts for the month of April were $258 million above projections, representing a positive difference of 2%. The April 15 tax returns were strong enough to keep the favorable variance going into the month intact. Although PIT refunds were significantly greater than expectations, final tax payments, estimated taxes, and withholding also were well above projections. As a result, net PIT was about $92 million, or a slight 1%, above forecasts.

April corporate tax receipts were very strong, besting the forecast by $180 million, or 12%. April retail tax receipts were the only somewhat disappointing source, falling a slight $14 million below projections, or 2%.

California enters the final two months of its fiscal year on a strong footing as increases in jobs, incomes, stock prices, and the real estate market bolster its financial position.  However, the State’s revenue sources remain vulnerable to cyclical swings, which underscore the ongoing importance of paying down California’s debt and building up its reserves.

 

 

April Closes in the Black

Although the numbers are subject to revision overnight, preliminary figures show that California's three major revenue sources -— personal income, corporate, and sales taxes -– totaled $13.2 billion for April. This was $125 million above estimates for the month, or 1%.

Personal income taxes tracked estimates closely, missing projections by $36 million, or just 0.3%. Retail sales taxes were also close to target receipts, missing estimates by a tiny $8 million, or 1%. In contrast, corporate taxes contributed a positive variance of $170 million, or 11%.

The performance of California's revenues during April puts the year-to-date margin above projections by $1.7 billion. Final numbers released in less than 24 hours will show the exact margin, but a cushion of $1.7 billion is a good sign for California.

Also of note: Compared to Los Angeles, San Francisco's taxed wealth showed a different distribution. In 2011, FTB reported that about 3,000 of San Francisco's 300,000 taxpayers had adjusted gross income exceeding $1 million. Of the $42.7 billion of total AGI reported by SF taxpayers, these “millionaires” had $12.5 billion (29 percent). They were assessed tax of $1.0 billion (41 percent) -— out of the $2.6 billion —- assessed on San Francisco taxpayers.

So when compared to LA County, the SF taxpayers with $1 million AGI represented the same tiny proportion of taxpayers, but they had a greater share of the county’s AGI and tax assessments.

Withholding Bolsters Personal Income Taxes

As numbers are tallied for this last day of April 2014, the focus will be particularly on personal income taxes (PIT).  While the first two days of this week have been a little disappointing, PIT is still running ahead of estimates for the month.

Gross PIT derives from two critical sources. In addition to the April push from estimated and final tax payments, withholding payments paid throughout the year by companies on the behalf of their employees are a primary revenue source. For the period, April 1-29, withholding amounted to $3.7 billion, or close to a third of gross personal income taxes.

While not as volatile as final tax payments impacted by swings in capital gains, movements in employment, wages, and salaries are also subject to the economic cycle. Fortunately, withholding remittances this year reflect the ongoing recovery in California’s economy.

Also of note: Capital gains are not the only "volatile" aspect of the income tax.  Withholding payments can vary from year to year and month to month.  Just as one example:  Looking at withholding payments made in April 2011 through 2013, withholding payments rose from $87.8 million in April 2011 to $125.8 million in the next year and $167.8 million in April 2013. 

  

Retail Sales Taxes Pull Ahead of Projections

Consumers are catching up. With one day to go, retail sales taxes have finally inched ahead of projections for April by $15 million. At about $500 million through April 29, they pale in comparison to corporate tax receipts that are exceeding $1.7 billion and personal income taxes of more than $7.0 billion.

For the total fiscal year, the Governor's budget expects retail sales taxes to total about $22.5 billion. That would amount to about 22% of the total of the three major revenue sources -- sales, corporate, and personal income taxes -- likely to be achieved.

Tomorrow, the last day of the month, is expected to be the largest day for April for retail sales tax receipts as various enterprises remit their payments. Hopefully, some of the refunds tax payers have received will come back through California's cash registers.

Also of note: The FTB processes tax payments as quickly as possible, but not all payments are processed in April. In fact, only about 60 percent of the 2011 tax liability was processed by April 28, 2012. Processing rates vary by the income class. Through April 2012, FTB processed more than 80 percent of the 2011 returns reporting adjusted gross income (AGI) between $1 and $200,000. For returns with AGI between $200,000 and $500,000, it processed about two-thirds of the returns in the same period. The processing rate fell to about one-third for returns reporting AGI of $1 million or more.

The April Tax Bulge

April 2014 is delivering for the State of California with a strong performance of personal income taxes (PIT). Although refunds have been running about $1.0 billion above expectations, the strength in withholding, estimates, and final tax payments has pushed the net month-to-date total also about $1.0 billion above projections.

April is always the most important month for California's tax coffers. In terms of its three primary revenue sources -- PIT, corporate, and sales taxes -- April typically accounts for about 11.5% of total taxes collected for the fiscal year. If tax payments were distributed equally across the year, the monthly tax take would be only 8.3%.

Last year's tax rate increases from Proposition 30 caused April to account for 15% of total revenues collected for the year. Since tax rates have remained unchanged, that impact will be absent this year. The gains in jobs, incomes, and capital gains from stocks and real estate are still likely to mean that this April will account for nearly 14% of revenues for the total year.

Also of note: Since beginning our daily installments of Tax Tracker this year, we have reported on the income-tax payments processed by FTB in March and April. Not all the processed payments, as reported, are associated with the 2013 tax year. Some of them are payments for 2014. Some of the total may include settlements of prior-year liabilities. And, if this year is like previous years, some of the 2013 tax payments will be processed after this month. For example, FTB processed a little over 83 percent of all the 2011 resident returns by April 28, 2012.  FTB processed the rest between the end of April and December 31, 2012.

Corporate Taxes Up 20% From Last Year

Total corporate taxes are up to nearly $5.9 billion for the year through April 25.  

Compared to the nearly $4.9 billion at the same time last year, this is a 20 percent increase over the prior year, or a jump of about $1 billion. 

With another $130 million of estimated revenues through today, this increase will likely grow.

Sales Tax Receipts Score Best Day for April

Preliminary numbers for today, April 28, show that sales and use taxes netted nearly $85 million for the day, which also covers sales made during the weekend. This comes on top of Friday's sales tax take of $82.5 million and brings the month-to-date collection essentially equal to the number expected so far for April.

Although the year-to-date results are still slightly trailing projections made as part of the Governor's Budget presented in January, consumers may be catching up. In the meantime, the corporate and personal income tax segments remain well above their January forecasts.

Also of note: The number of limited liability corporations (LLC) keeps growing. In 2011-12, 80,275 new companies registered with the State. The following year, that number rose to 89,158, which marked a more than 10 percent growth rate. The number of total tax returns rose from 336,289 to 353,104, representing a gain of 5 percent. At the same time, revenues from LLCs grew from $627 million to $658 million, also a 5 percent increase.