April 2019 Corporation Tax Collections Stronger Than Expected

As we noted in our Personal Income Tax Tracker, corporation tax (CT) collections are currently running ahead of the administration’s budget projection for the entire month of April. This post explains the timing of certain CT payments and discusses the potential budget implications of strong CT collections in April.

April Typically Is Second Largest Corporation Tax Collections Month. Income tax collections in some months are more important than the results from other months due to when different types of tax payments are due. Corporations and other businesses are required to make quarterly estimated tax payments throughout the year, but the filing deadlines depend on when their fiscal year ends. About 75 percent of corporations end their business fiscal year in December—we refer to these as “calendar year” corporations. The first quarterly payment is due in the fourth month of the business’ fiscal year—April for calendar year corporations. Corporations also must make any final tax payments associated with their taxable income from the prior year in the fourth month following the close of their fiscal year. Because most businesses are required to make both of these payments in April, it is one of the largest CT collection months. In a typical year, about 20 percent of CT revenues are collected in the month of April.

April CT Collections Running Ahead of Projection. In the Governor’s budget, the administration projected total April collections would be $2.6 billion. April CT payments include both the final payments for 2018 and quarterly estimated tax payments for 2019. The administration has estimated that final (and other associated miscellaneous) payments would be $1.4 billion, quarterly estimated payments would be about $1.3 billion, and refunds would be just over $100 million. As of April 18th, CT collections are $3.1 billion, ahead of the April projection for the entire month. We will receive more information next month about how much of the total is associated with each type of payment. If the final payments are above projections, this suggests that corporations were more profitable in 2018 than anticipated. If estimated payments are above projections, this suggests that corporations may be optimistic about their profitability in 2019.

Implications for June CT Collections. June is the largest CT revenue month. Unlike April, however, June collections are mostly quarterly estimate tax payments. (Calendar year corporations are required to pay 40 percent of their estimated tax liability in June compared to 30 percent in April.) If estimated payments are driving the strong collections this month, June receipts may be larger than currently expected.