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.

Dividends Rise

Recovering company profits are not only boosting California’s corporate tax payments, but they are also raising dividends for individuals and contributing to the State’s intake of personal income taxes. In calendar 2013, dividend payments received by California residents reached an estimated $94.5 billion.

The economic boom based on housing’s surge elevated California dividends to a record $102.5 billion in 2007. After the financial crisis caused companies to hoard cash, dividends plummeted to only $66 billion-$67 billion in 2009 and 2010. Large gains in cash flow, limited opportunities seen by companies for investment opportunities, and shareholder pressure are again driving larger dividend payouts. 

The recovery in dividends is another good piece of news for the State’s financial coffers, but is also another sign of the cyclicality of California’s revenue base.

Also of note: As the Franchise Tax Board closes out its income tax return processing for 2013 returns, some staff will begin to focus their efforts on completing the refund cycle. At the end of last April, FTB had identified 479,000 taxpayers who still had refunds outstanding, at a value of about $500 million.                                      

Higher California Payrolls

Wage and salary payments represent the core of personal income taxes in California, which in turn are the state’s primary financial resource.  The recovery in jobs and earnings is giving the state’s revenue coffers a welcome fill-up.

Based on the total of all entities in California with payrolls (including government agencies, but not single proprietorships), wages and salaries totaled nearly $210 billion in the second quarter of 2013.  For the total year, payrolls probably approached $900 billion.

Last year’s gain in total payroll dollars was probably around 4.8 percent based on the latest available data.  This followed the 6.0 percent jump for all of 2012 and was in stark contrast to the 5.4 percent plunge of 2009.  This volatility points to the need to be cautious in ramping up spending during times of economic rebound and the need to build the state’s reserve fund.

Personal Income Taxes pass $10 Billion mark for April

Personal Income tax revenues hit the $10 billion mark yesterday with actual figures at just under $10.1 billion.  Today’s withholdings are estimated to bring the total to just over $10.1 Billion.  This brings the estimated total for the three revenue sources to nearly $12 billion for the month of April.

Corporate Tax Receipts Up

Although corporate taxes are the smallest of California’s three major revenue engines, they are likely to exceed $8.0 billion for fiscal year 2013-2014 and are surpassing projections made as part of the Governor’s Budget submitted in January.  Numbers for the year to date have been running about $0.7 billion or 13% above those forecasts. 

The pickup in corporate taxes reflects the economic recovery that has boosted company earnings nationally and in the state.  The period of large write-offs from losses incurred during the recession has also ended. 

It is good news to see that corporate taxes are no longer stalling.

Gap Between Revenues and Estimates Close

With great performances from personal income and corporate taxes this month, retail sales have been very close but just behind projections for the whole month of April.
 
Over the last five years, retail sales revenues, on average, have experienced a moderate but significant surge in the final days of collection for the month of April.
 
With the estimated $58.6 million received today, the margin between revenues and the estimate is getting smaller.

Total Revenues Inch Above Year-to-Date Month-End Expectations

With the personal income tax withholding estimates in, the State is expected to exceed the month-end year-to-date estimates for all three revenue totals today. The estimated year-to-date figure currently stands at $75.1 billion, while the month-end total expectations are $74.9 billion.  

The daily income tax collections are likely to taper off until the end of the month.  Last year, these final four days generated additional PIT revenue of about half a billion dollars. If this year generates as much, budget watchers can expect that cumulative income tax revenues will total about $53.2 billion by April 30.  That is an increase, but a small change -- well within estimating error -- of the January estimates. Is the change enough to warrant an upward adjustment of current- and budget-year revenue estimates? 

Slow crawl, or slither

While tax returns continue to trickle in, last year the FTB reported income tax collections of $5.5 billion in just two days, April 16 and 17.  For tax returns which come in the mail, the board must open the return, verify the tax calculations and deposit the checks.  Talk about a pig in a python!   How can FTB accurately and efficiently move so much tax information and tax dollars through its processing systems?   To give a perspective, if Franchise Tax Board were to process $1,000 of this total in each second starting at midnight on April 15, it would not complete the processing until June 18 at 4:00 PM.  

But, the state does not have the luxury of waiting until mid-summer to deposit its tax checks.  Thankfully, many taxpayers file tax returns electronically, so the electronic filing facilitates verification of returns and payment processing.  FTB also hires many seasonal workers to assist during the peak processing days for those returns filed through the mail.  Without the careful planning and professionalism of FTB staff, the python of tax processing would take much, much longer.

Each month, residents from around the West—from Hawaii, Alaska, Montana, Utah, Oregon, Washington and California--mail their quarterly income tax payments to a post office box in San Francisco.  Typically, these payments come from high-income taxpayers, including payments from software moguls, oil-rig engineers, Hollywood starlets and prairie rustlers.  From the San Francisco PO box, the IRS trucks the letters to Hayward for envelope opening, tax verifying and payment depositing.  What if, during the processing of those checks something really, really bad happened?  Something did on September 11, 2005:  The truck carrying these payments across the San Mateo bridge had a particularly nasty accident.  All 30,000 letters fell into the bay. The IRS recovered about half the letters.   What happened to the other letters?  Like Luca Brasi, 15,000 tax payments sleep with the fishes.  The IRS waived interest and penalties for the taxpayers whose returns remain in the bay.

California Ahead of Projections

Through April 22, the State’s total revenue is at $74.4 billion for the year, which is $3.1 billion ahead of the latest forecasts. With personal income taxes showing a strong start to the day, this trend of strong revenues is likely to continue.

 

Speaking of capital gains:  Statute sometimes allows taxpayers to carry over their capital losses from one year to the next. For the five-year tax period ending in 2011, the latest year for which the Franchise Tax Board reports, the inventory of losses rose from an estimated $64.1 billion to $121.3 billion.

Retail Sales Taxes Trying to Keep Up

April began somewhat on the soggy side in terms of retail sales tax receipts but have picked up during the past week.  Although sales taxes are only expected to account for about 5 percent of California’s total collections from its three primary revenue sources for April, they are projected to comprise about 23 percent of the year for the total fiscal year 2013-14.

Boosted by spending related to Easter, sales tax receipts net of refunds exceeded $200 million during the past week, which was close to the amount that might have been expected.  For the fiscal year to date, retail sales taxes are also running very close to estimates, with a slight negative variance of just 0.5 percent. 

Job and income growth should continue to support consumer spending, but this tax source will need to be monitored closely.

April’s Major Tax Revenues Hit $10.4 Billion

Finalized numbers show that collections for three major revenue sources—personal income, corporate income, and sales taxes—reached $10.4 billion for the month-to-date as of Monday, April 21.  Personal income taxes (PIT) commanded the dominant share at $8.9 billion.  Driven by growth of company payrolls and capital gains, PIT appears to be running about $1.2 billion ahead of estimates so far in April and is about $2.3 billion ahead of estimates for the entire fiscal year-to-date.

Each year, the single biggest source of taxable income can be attributed to wage income.  While its share may vary over time, in the last four years, wages accounted for between 61.3 percent and 67.3 percent of taxable income.   In 2011, for example, and after accounting for data anomalies, FTB reported that wages accounted for 63.5 percent of taxable income. 

California’s Cash Cushion Remains Solid

Buoyed by a relatively good day for personal income tax receipts (PIT) and continued strength on the corporate side, preliminary numbers for April 21 show that California’s total receipts from its three major revenue sources are still exceeding projections by about $2.7 billion.

Monday’s numbers, including weekend dining and spending for Easter, also indicate that retail sales taxes are catching up, with year-to-date receipts only trailing estimates by around $67 million.

The stock market’s performance remains critical to the revenue outcome. Of the capital gains and losses reported in 2011, taxpayers reported stock gains of $29.0 billion. Against these gains, they netted losses of about $15.2 billion. For stocks held less than a year, they reported more losses than gains, showing losses of $5.5 billion and gains of $4.8 billion.  Gains from stocks held longer than a year outstripped losses by $14.5 billion.

 

California No. 1 in Personal Income and 12th in Per Capita Terms

California generated $1.8 trillion in total personal income in 2013, easily surpassing the $1.2 trillion of second place Texas. Adjusted for population size, California’s per capita income was $47,400 last year, ranking it 12th highest in the nation.

Per capita income in Texas ranked a distant 25^th in the nation, although its cost-of-living is significantly lower than that of California. Per capita income in California is about 106% of the national average, which is virtually identical to that of Washington.

California’s per capita personal income rank largely reflects the presence of higher-paying jobs necessary to support the inherent higher cost of land and housing in many parts of the state.

California Looks to Personal Income Growth

California's personal income tax receipts are holding up so far this April despite only moderate growth in personal income during 2013. For April 1-18, 2014, personal income tax receipts (PIT) net of refunds totaled $8.6 billion, according to final figures. This puts the month-to-date total at 80% of the target for the total month, which is essentially identical to the ratio achieved at the same time a year ago.

California’s personal income grew a moderate 2.8% in calendar year 2013 versus a 5.0% gain in 2012. Personal income growth nationally also slowed from 4.2% to 2.6%.
 
Two major forces led to some slowing in income growth last year. First, the two percentage point temporary drop in payroll taxes for Social Security (from 6.2% to 4.2%) that was in effect during 2011 and 2012 ended. Second, individuals tried to shift some income, such as bonus payments, into 2012 before higher federal tax rates went into effect in 2013.  (California’s increase was retroactive to January 1, 2012).

As a result of these changes, wages and salaries net of Social Security taxes rose just 2.1% last year in California. Investment income -- including dividends, interest, and rent – increased by 4.1%. Various transfer payments -- including Social Security, Medicare, veterans’, and unemployment benefits -- also saw a strong 4.0% gain. Overall, last year, California ranked 16th in national income growth and was in the fourth quintile of state
performance.

In addition to growth in the core PIT base, including wages, investment income, and transfer payments, capital gains through the stock and real estate markets are major drivers of PIT.  In his May Revision documentation, many expect the Governor to discuss how much taxable capital gains may add to 2013-14 and 2014-15 revenues. 
 
What makes taxes on capital gains difficult to estimate? There are many reasons, but one important reason is that taxpayers often have discretion about when they “realize” a gain for purposes of taxation. They can defer selling a stock, for example, that has appreciated a year or two, as they manage their investment portfolio. For example, of the $74.7 billion in capital gains reported by taxpayers in 2011, $11.1 billion (15 percent) were from investments held for less than a year. The balance, which could include stocks and real estate, were held for an excess of 12 months. The holding period could be a very long time.  The State’s revenue estimators have a difficult time estimating how much of these holdings have appreciated and when taxpayers might decide to realize their gains.

When trying to anticipate capital gains, revenue estimators must consider investment losses when trying to predict taxable gains, as losses can reduce tax liabilities on investment gains. For example, taxpayers reported capital losses of $25.7 billion in 2011. These losses were used to offset over one-third of the investment gains reported for the tax year.  

This Week's Tax Take Reaches $7.7 Billion

As Californians rushed to meet the April 15th tax deadline, the state saw a strong inflow of funds.  Based on preliminary numbers for Friday, total collections of personal income taxes (PIT), corporate taxes, and sales taxes, totaled approximately $7.7 billion for the five days through April 18th.  This represents nearly 60% of the total goal or projection for the month.  

The Franchise Tax Board’s (FTB’s) statistics can segregate taxpayers by adjusted gross income.  It reports that in 2011 there were nearly 15 million resident returns.  Of these, the “wealthiest” returns--1.5 million (that is, the “top 10 percent”)--had a minimum adjusted gross income (AGI) of about $133,000.  The wealthiest one percent of resident returns listed a minimum AGI of over $460,000. 

 

Of California's three major revenue sources, only retail sales taxes are still falling short of projections, but Easter shopping this weekend could reverse that trend.  Consumers have indicated that they expect to spend an average of $137 for the holiday so perhaps they will be busy this weekend.

 

California Posts Further Job Gains in March

California's economy continues to expand as evidenced by the latest jobs report.  California added nearly 12,000 jobs in March compared with February.  This puts the year-to-year gain at a solid 325,000, or 2.2%, which means that the state is outperforming the nation which recorded a rise of 1.7%.

As last month's job gain was offset by more people entering the work force, the jobless rate held steady at 8.1% between February and March.  This still represents a sizable drop from the 9.2% rate prevailing a year ago.

Job growth has also boosted withholding taxes paid by the state's employers.  So far in April through Friday, the 18th, withholding taxes have totaled $2.5 billion.

FTB segregates capital gains into four major categories:  stocks, residential real estate, non-residential real estate and all other (including nonstick securities, bonds, partnerships and S corporations).  Of the first three categories, stocks showed both the biggest reported gain ($29 billion) and loss ($15 billion) in 2011.

Individual Tax Payments Surpass $1.0 Billion for Third Day

As Californians' tax payments continue to come in and be tabulated, they are quite strong.  Final figures for April 17 show that personal income tax payments net of refunds exceeded $1.0 billion for a third consecutive day.  Corporate tax payments also remain strong and retail sales taxes may be starting to catch up -- probably reflecting late Easter shopping, retail sales taxes as of today, April 18, reached $74 million.  This is about three times the daily volume we have recently seen on a strong day.

Taxes paid on capital gains are likely to receive attention over the next few weeks.  The Franchise Tax Board’s (FTB’s) statistics tell us something about who pays these taxes. In its most recent data, for the 2011 tax year, FTB reports that taxpayers reported $52.1 billion in gains and paid $4.2 billion in tax on those gains.  Over 90 percent of all the gains were reported by taxpayers with adjusted gross income (AGI) in excess of $200,000.  These high-income taxpayers paid over $4.0 billion (96 percent) of the tax on capital gains in 2011.   Taxpayers reporting AGI exceeding $10 million reported $20 billion (38 percent) in capital gains and paid $1.7 billion (39 percent) of the capital gains tax.

Jelly Beans and Chocolate Bunnies

Retail sales tax receipts have received a boost this week related to Easter shopping, although it has not been dramatic.  Through Thursday, April 17, sales taxes net of refunds (such as for returned merchandise) have totaled about $64 million.  So far this fiscal year, sales taxes are the only one of California’s major three revenue generators (Including personal income and corporate taxes) not meeting expectations.

Hopefully, Californians will spend more before Sunday arrives.  Recent surveys by the National Retail Federation (NRF) suggest that American consumers will spend nearly $16 billion on purchases related to the Easter holiday this year.  Based on California’s 13% of the nation’s total income, California Easter sales should equal about $2 billion. 

 

NRF research indicates that Americans on average will spend $137 on Easter related purchases.  Food represents about one-third of this spending, with dollars going to both restaurants and grocery stores.  Apparel, gifts, and candy follow in terms of major Easter spending categories.  Consumers also will be doing more of their shopping online.   

 

With about 80% of Americans celebrating Easter in some way this year, the performance of sales this week will provide a significant barometer on consumer sentiment.  This will be important to California’s second most important revenue source.

Credits add up

State law allows for special credits to reduce personal income tax liability.  These credit provide tax preferences for a large range of activities, including providing child and dependent care, installing solar systems, and buying a new home.  In 2011, taxpayers claimed these credits at a combined value of $1.4 billion.  

A Surge in Tax Receipts

Today was very strong in terms of California's tax take, according to preliminary figures. April 16 receipts of California's three major revenue engines -- personal income taxes (PIT), corporate income taxes, and retail sales receipts -- reached $3.1 billion. This brings the month-to-date total to $7.3 billion, or 56%, of the total expected for the month.

Today's collection of PIT led the surge, totaling $2.5 billion for the day. This was virtually identical to last year's tax take and appears surprising since a change in tax rates probably boosted last April's figure. Some caution is warranted due to revisions that could take place tonight, but if the numbers stand close to this reading it is good news for California's bottom line.

Also worth noting: Not only individuals and households filed their income tax returns yesterday. Sole proprietorships file under the income tax system as well. In 2011, 2.2 million sole proprietorships filed with FTB, and were assessed $9.8 billion in taxes. Of this tax assessed, service firms account for about $5.8 billion (59 percent). These firms could provide technical, scientific, administrative or health services. Firms specializing in finance, investment and real estate owed $1.4 billion (14 percent), while firms specializing in retail and wholesale trade had assessments of about $600 million (6 percent). FTB assessed another 500,000 firms $1.1 billion (11 percent), but FTB was unable to determine the nature of the sole proprietorship's business.

See How 'Tax Gap' Affects State

Hey! You've got to hide your love away. The Franchise Tax Board (FTB) reports that California taxpayers underreport and underpay about $10 billion in "personal and business taxes" each year. Most of the yearly "tax gap" -- $8 billion -- occurs when taxpayers file their return but either underreport their income or overstate their deductions. FTB ascribes another $1 billion of the annual gap to underpayments. The agency also believes that collections fall short by another $1 billion each year because taxpayers fail to file a timely tax return.
 
The tax board notes that the tax gap affects all Californians, saying that when some taxpayers fail "to pay what they owe [then] the rest of us bear an additional burden. This [higher burden] can come in the form of higher fees and taxes, fewer government services, or budget deficits -- or all three."

A Billion Dollars Arrive on April 15

They may have been procrastinating, but California taxpayers came through on April 15th as they paid $1.0 billion in estimated and final tax payments. With refunds and withholding taxes for the day offsetting each other, net personal income tax (PIT) receipts also equaled $1.0 billion.  This compared with last year's April 15th figure of $850 million.

Yesterday's tax surge put the State's cash tally in terms of its three major revenue sources -- PIT, corporate income, and sales taxes -- at about $67.7 billion for the fiscal year to date (July 1, 2013 through April 15, 2014). This is $1.6 billion more than projected based on the Governor's Budget released in January.

PIT is running about $1.0 billion, or 2.2%, above projections. Corporate tax revenues are more than $700 million, or 16.8%, above expectations. Retail sales are the only category still behind forecasts, although the 0.7% miss amounts to only about $100 million.
 
Also worth noting: Taxpayers pay a rising tax rate on incremental increases of income. Because of the rising rates, high-income taxpayers will not pay the topmost tax rate on all their income today. Consider for example, the effective tax rate paid in 2011 by the 671,290 taxpayers with adjusted gross incomes above $200,000.(Note: 2011 reflects a tax year prior to the imposition of the Proposition 30 levy.) Of these high-income taxpayers, 334,834 (50 percent) paid at a tax rate between 5.0 percent and 6.9 percent. Another 228,388 (34 percent) paid between 7.0 percent and 8.9 percent.  Fewer than 25,000 taxpayers (4 percent) paid at a tax rate exceeding 8.9 percent. At the other end of the scale, 83,549 high-income taxpayers (12 percent) paid a tax rate of between 0.0 percent and 4.9 percent.

Many Filers Don't Have To Pay

Not all who file shall pay. Many people filing tax returns today will escape having any tax liability. They may qualify for refundable credits that exceed their tax liability. Or they may find that after making various tax adjustments (such as deductions and credits), their entire tax liability has been eliminated.

Consider that in 2011, 15.0 million resident taxpayers filed returns, but 6.5 million (43 percent) had no tax liability. Nearly all of the non-taxable returns were filed by those reporting adjusted gross incomes (AGI) of less than $50,000. Comparing the returns by AGI, the nontaxable returns are predominately among the lower AGI classes.

• Of the 9.5 million returns reporting AGI less than $50,000, 6.1 million (65 percent) had no tax liability.
• Of the 3.1 million returns reporting AGI between $50,000 and $100,000, 300,000 (10 percent) had no tax liability.
• Of the 1.7 million returns reporting AGI between $100,000 and $200,000, less than 11,000 (1 percent) had no tax liability.
• Of the 700,000 returns reporting AGI exceeding $200,000, less than 2,400 (0 percent) had no tax liability.

April 15th Arrives

Today, in case anyone needed the reminder, is income tax day. We expect more than 8 million resident taxpayers will have liabilities due today. Most tax liabilities will be less than $1,000.

According to the Franchise Tax Board’s latest annual report, 8.5 million resident taxpayers had a liability in 2011. Of those, 3.8 million (45 percent) had liabilities of up to $1,000, and another 1.3 million (15 percent) paid between $1,000 and $2,000. For 2.0 million (23 percent) other taxpayers, tax liabilities ranged from $2,000 and $6,000. The rest, about  1.4 million (17 percent), had liabilities exceeding $6,000.

With many taxpayers struggling until the end to meet the filing deadline, the heaviest cash flows can be expected tomorrow and Thursday. Last year, reflecting the impact of capital gains, an improving economy, and higher tax rates, April tax receipts peaked on the 16th of the month at $2.7 billion. This number includes withholding taxes filed by companies in addition to estimated and final tax payments but does not reflect the impact of refunds. With tax rates holding steady during the past year, this year's peak for the month is likely to be much less than last year, but it is still expected to be close to or surpass $1.5 billion.

Another $450 Million

April 14 has begun the week with another $450 million in total tax collections, according to preliminary figures. This would mark the third day this month that revenue mark has been breached, although revisions due out early tomorrow morning could alter the figure either upward or downward.

So far this month, personal income tax and sales tax receipts appear to be running somewhat below expectations for April, while corporate taxes are consistently running above projections. A clearer picture will come into view as this week proceeds with the deluge of personal tax filings.

Meanwhile, although sales taxes pale in comparison to California's collection of income taxes, they are still a significant source of revenue and also an important barometer of the overall economy. This morning’s positive report on retail shopping is thus good news.
 
National retail sales jumped 1.1% between February and March, which was the best performance in 1-1/2 years. Although some of this reflected a weather-related bounce not relevant to our state, the general upswing suggests that consumers are more optimistic about the economy and ready to spend.
 
Consumers were spending more on items across the board. These included spending for cars, furniture, sporting goods equipment, restaurant meals, and merchandise ordered online.   If the job market continues to gradually improve, Californians should keep shopping and help support the State's cash flow.

Which County Has Highest Median Adjusted Gross Income?

Adjusted gross income (AGI) is not spread evenly across the state.
 
According to FTB statistics for 2011, Marin County had the highest median AGI -- just over $52,000 -- among counties.
 
Over 118,000 taxpayers filed returns from the county. San Mateo and Santa Clara Counties ranked second and third in income, with a median income of nearly $50,000 and $48,000 respectively.  Returns from these two South Bay counties totaled just over 1.1 million.
 
Los Angeles County, with over 4 million returns and a median income of about $30,000, ranked 38th in income among the state's 58 counties. Imperial County’s 60,000 returns reported the lowest median AGI -- just above $23,000 and less than half the income of Marin, San Mateo or Santa Clara Counties.

See Which Group Fuels Income Tax Revenues

Who pays the income tax? There are many ways to answer this question.

According to FTB's annual report in 2011, there were 2.4 million taxpayers with adjusted gross income (AGI) exceeding $100,000. They accounted for 15.8 percent of the total 15.0 million residential taxpayers.  Cumulatively, they reported $592 billion of the $982.1 billion (60.3 percent) in the year's AGI.  Given the State's tax structure, these same taxpayers had $37.2 billion of the $43.9 billion (84.6 percent) of the year's residential income tax liability. 

A Big Week for the Franchise Tax Board

Bleary-eyed Californians will be pulling all nighters this week to complete their tax returns.  Their efforts will be critical to the State’s cash coffers. Last year, the five days surrounding the April 15th tax deadline netted $8.1 billion. This represented 65% of the total collected for all of April. Some of last year’s tax surge reflected the impact of higher tax rates approved by voters in November 2012, which were made retroactive to the beginning of the year.

With no change in tax rates during the past year, this year’s personal income tax take is likely to trail last year's. Nevertheless, this will again be a vitally important few days for the State’s finances.

For the 2013 tax year, FTB will likely process roughly 15 million returns from residents. For a little perspective, for the 1947 tax year FTB had 784,709 residents' returns with a liability of $45.4 million. In 2011 (the last year for comparable data), FTB had 15,042,359 returns with a liability of $43.9 billion. That represents an average annual growth rate for returns of nearly 5 percent and for liability of over 11 percent.

For Those Who Can't Make the April 15 Tax Deadline

For those who can’t quite make the April 15 tax deadline this year, the State of California offers an automatic filing extension through October 15, 2014.

Nearly 1.6 million taxpayers had an extension for the 2012 tax year. For those who are unable to make a timely tax return, FTB advises: If the taxpayer is due a refund, he or she must file their return by October 15, 2014. If the taxpayer has a balance due and wants to avoid penalties and interest, he or she must pay the amount owed by April 15, 2014, then file the return by October 15, 2014. (For more details on filing an extension, see FTB's website: https://www.ftb.ca.gov/individuals/faq/ivr/201.shtml).

Withholding Fuels Income Tax Revenues

While many Californians may be waiting until this weekend to complete their tax returns, companies have provided a steadier flow of revenues for the State through their withholdings. For the first 10 days of April, withholding taxes totaled about $1.7 billion. This compared with $1.1 billion in estimated and final tax payments and represented about 60% of the total gross personal income tax receipts deposited so far this month.

Tax filings will ramp up dramatically next week, but withholding taxes will continue to flow into the State’s coffers, providing a good source of support.

Californians Benefit From Refunds

Californians have been submitting their tax returns in recent days with many of the early returners looking forward to refunds. During the first 10 days of April, refunds on personal income taxes (PIT) totaled $1.1 billion. That compares with about $840 million a year ago.

When the State returns money to taxpayers, it is not a complete or permanent revenue loss. This is because refund recipients will turn around and often spend a significant share of their receipts on their homes or purchases for themselves and their families. This spending will both help drive California’s economy and come back fairly quickly in terms of higher retail sales taxes.

So far this month, for every three dollars of personal income tax payments the State has received, it has sent back more than one dollar in refunds. This is similar to the share sent back during the comparable period in 2013. For all of April, the share of refunds to gross PIT will be about half what it has been as fewer of the later filers receive money back. Last year, refunds were equal to 16.5% of gross PIT for the total month.  A similar experience is likely this year.

$2.0 Billion Mark Passed

Although the numbers are still preliminary, April 10^th saw California’s bank account for the month-to-date growing $2.1 billion.  This appears to be a fair start to the monthly forecast of $13.1 billion as the heavy inflow will take place during next week.

Personal income tax receipts are key to California’s fiscal picture.  Through April 10^th, they have reached $1.9 billion.  The forecast for the April total is $10.9 billion.

Retail Tax Receipts Catch Up

Tax receipts are recorded net of various refunds that are paid and retail taxes are no exception.  This month refunds were recorded much earlier than expected and have weighed on the total.

The Board of Equalization (BOE) issues refunds on a daily basis to retailers as they reconcile their remittances.  When customers return merchandise, for example, tax receipts are returned to the merchant.

Periodically, refunds issued on a given day can exceed revenues by a large margin.   Such was the case on April 2 in contrast with last year on April 10.  Now, with at least preliminary numbers available this month for the 10th, comparisons came be made.  The result?  April so far is running virtually identical to last year with refunds exceeding payments by about $86 million.  The big refund bulge is now over and we should generally see positive net cash inflows for the balance of the month

April Tax Collections Reach $1.7 Billion

During the first nine days of April, California took in a net $1.7 billion of tax receipts, dominated by $1.8 billion of personal income tax receipts ("net" totals refers to total reciepts minus refunds paid out to taxpayers).  So far this month, sales tax refunds have outpaced tax receipts, but that performance is expected to change before month-end.

For April as a whole, personal income tax receipts will be the dominant force, accounting for more than 80% of the state’s total tax receipts as individuals file their final returns and make their estimated tax payments.

Afternoon Revenue Update

Today the Franchise Tax Board is expected to bring in its highest level of daily income so far for the month: $197 million. However, due to refunds issued for personal income, the day is expected to total $120.7 million, raising the monthly total to $1.49 billion. This will help with the month-end total, especially when the expected surge of revenues comes in next week during the 16th and 17th.

Year-to-Date Revenues Top Projections by $1.5 billion

California banked $1.5 billion more than expected at the end of the first week of April. For the period July 1, 2013 through April 8, the State’s “Big Three” revenue sources -- personal income, corporate, and sales taxes -- generated $65.0 billion versus the $63.5 billion that was predicted based on the Governor’s Budget released in January.

Personal income taxes accounted for the bulk of the positive variance, with a margin of $1.03 billion, or 102%, of the forecast. Corporate taxes beat estimates by about $550 million and were 14% ahead of estimates. Only retail sales taxes fell short of estimates, although the miss was a relatively small $80 million, or 0.5%.

Capital gains, earned primarily by wealthier Californians, are helping to fuel the State’s personal income tax receipts. Not so long ago, high-income taxpayers were required to make payments on a certain steady basis throughout the year. During the State’s cash shortages during the last 10 years, the payment schedule accelerated. The Franchise Tax Board advises taxpayers with the following: California differs from federal law. To avoid an estimate penalty, taxpayers must pay at least 30 percent by April 15 and 40 percent by June 16 of this year and 30 percent by January 15, 2015.

Perspective on March Revenue Numbers

Controller John Chiang today released his monthly report covering California's cash balance, receipts and disbursements in March 2014. Revenues for the month totaled $6.4 billion, surpassing estimates in the 2014-15 Governor’s Budget by $470.9 million, or 7.9 percent. Read the news release and related analysis: http://bit.ly/1k4eol0

April 15 A Week Away

Californians have one week to complete their tax returns, but some of the early (earlier) birds have already paid.  Between Monday and today, Tuesday, April 8, the Franchise Tax Board has collected somewhere around $300 million in personal income tax receipts according to preliminary figures.   Including the revenues from withholding for individuals and netting out refunds, the two-day take has been about $680 million.  This is about $100 million more than was collected during the comparable two-day period last year.

California Consumers Out Shopping

Although the Passover and Easter holidays are a week and two weeks away, respectively, Californians are shopping and adding to California’s tax collections.  Retail sales tax collections for April 7 and 8, which also included the weekend, totaled $26.5 million.  This dwarfed the $11.2 million received a year ago, when Easter and Passover occurred at the end of March.  Typically, retail sales tax receipts -- excluding major consumer durable goods -- account for about one-third of sales tax collections.

April Tax Receipts Reach $1.3 Billion in First Week

Final numbers are in for California’s tax take on its three major revenue sources for the first week of April though Monday, the 7th, and the numbers look positive.  The first week total was $1.3 billion, which is about 10.2% of the total expected for the month as a whole. This is identical to the proportion reached in the comparable first tax reporting week of April 2013.

Corporate taxes are at 9.8% of their monthly target. While retail sales refunds so far have exceeded tax payments, personal income tax receipts are already at 13.3% of their monthly goal. The heavy inflows of personal tax payments should come around the middle of the month.

Nearly two-thirds of every dollar deposited in the General Fund comes from the Personal Income Tax (PIT).  Individuals pay the bulk of this tax, but certain partnerships and closely held companies may also opt into the income tax system.  These partnerships and S-corporations account for less than 10 percent of the total PIT collections.

 

 

Weekend Tax Payments Tallied

This morning we received two additional data points on California’s tax receipts.  For April 7, which includes funds received during the weekend, retail sales taxes totaled about $20 million, the highest daily number so far this month and nearly double the number recorded after last week’s three-day weekend/holiday.  Estimated taxes totaled $136 million, which appears to be somewhat on the softer side.  Including these latest two figures, California’s revenues from its tops three tax sources—personal income, corporate, and sales taxes—are at $64.5 billion for the fiscal year to date.

Tax tracker records collections in the three major taxes. Are there other revenues that are deposited in the General Fund?  Levies on insurance, alcohol and horse racing are General Fund revenue sources.  Interest on unclaimed property is deposited in the General Fund.  Proceeds from levies of the VLF and property tax are not, as they are considered “local” taxes. Last week, the state completed the third quarter of the fiscal year. 

Playoffs Tonight

While the NCAA tournament may be on the minds of many, California’s revenue watch is on a full court press as the critical tax season begins.  A word of caution should be mentioned about preliminary estimates made with initial data feeds from the reporting agencies: While the preliminary numbers for the first four days of April tallied tax receipts from California’s three major revenue sources at about $1.5 billion, revised numbers put the total at $830 million.  The variance could also easily be positive on the state’s behalf, but analysts should not overreact to early estimates.

 

April Tax Receipts Hit $1 Billion

Preliminary numbers for April 4 indicate a solid number for personal income taxes, supported by a robust number for withholdings.  Employers reported $412 million in withholding taxes for the day, bringing the month-to-date total to $1.0 billion.  Estimated tax and final tax payments were essentially equal to refunds, so that total net personal income tax payments also came in at about $1.0 billion for April 1-4. 

The interest in the income tax returns was not always so great.  Thirty years ago, when the state relied more heavily on sales tax revenue, budget watchers were more concerned about holiday sales receipts reported in December and January.  Now, as expected, corporate tax and retail sales made little additional contribution to the revenue aggregate of California’s “big three” tax sources, leaving the total at about one billion dollars for the first few days of the month. This is a good first milestone for April.

Taxpayers have about two weeks to complete their tax returns. So much of the state’s General Fund depends on collections of the income tax. No wonder April tax returns are of interest.

With just three days of final numbers, refunds are exceeding payments, but this should soon change. Preliminary numbers show a strong number for withholding for April 4 ($412m).

Updated figures posted for yesterday, April 3 ($184m for PIT, 18.6m corp and 16.7m sales).

More on corporate tax receipts and trends

The state has collected $75.9 million in corporate taxes in the first few days of April, with today’s revenues expected to bring the month-to-date total to $86 million, $78.7 million ahead of projections.  Actual corporate revenues through the year to April 2nd are also ahead of projections, continuing the trend of a strong start to month of April.

The first ten working days of April typically provide little predictive information about how much taxpayers will file when their taxes come due.   Last year, for example, the Franchise Tax Board reported that 60 percent of the entire income tax collected in April during a four-day period starting April 15.

On April numbers...

While the salaries and wage base assists budget experts project future revenue performance, other aspects of the income tax returns might not have as much predictive power.  Most notably, the portion of tax base known as “unearned income” is less stable.  This portion of the tax base, which can include dividends and investment earnings, is subject to a great deal of year-to-year variations, depending on changes in taxpayer conditions and the business cycle.  Often, investment earning may not become subject to taxation unless the taxpayer chooses to recognize the gains.  He or she may choose to offset these gains against other investment losses.   And all this activity tends to be concentrated on a small percentage of taxpayers.  Given the range of variables that can affect the unearned income category, no wonder it is hard for budget writers to predict capital gains activity. 

April 3 starts well

By 10 a.m. this morning, the State totals for the big three taxes totaled $64.2 billion, with an estimated $288.5 already reported today.

April 2014 tax reporting not only helps budget writers monitor actual receipts for the 2013 tax year, it informs their thinking about the likely taxpayer behavior in 2014. So it helps them model likely tax receipts in April 2015. For example, it tells them something about the likely tax base. More than 60 percent of all income tax collections are derived from wages and salaries. If the 2013 tax returns show an increase in the wage and salary base, it is likely that the increase will continue in 2014.

Corporate is up

Corporate tax revenues for April continue to surge ahead, with the net total for the month already at $77.4 million.  This is $18.1 million above the first two weekdays of April last year.  Total net revenues for the month from the three main sources ended today at just over $861 million, also up from the same period last year at nearly $265 million.  The strong start for April’s revenue continues to be on track to meet or exceed the projected revenues for the month.

The April Watch is On

All eyes will be on daily revenue counts as the critical tax season begins.  The first day of the month may have been a little disappointing. The total revenue take was $71.4 million, a number which was substantially down from the figure initially reported.   Retail sales for April 2 remained on the soggy side.  However, corporate tax payments remain strong and personal income tax receipts are also likely to be solid.  Final figures for March showed a strong performance for both.

 

Roughly two-thirds of the General Fund derives from Personal Income Tax levies.  By the middle of this month, taxpayers will have filed their income tax forms for the year ending December 31, 2013.  When all the returns are opened and processed, budget writers will sift and test the data to see what the 2013 tax returns tell them about what to expect in 2014.  What they find will shape how they estimate 2013-14 and 2014-15 revenue estimates.