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.