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.