|Budget Issue:||May income tax collections, to date, are above Governor's projections|
|Finding or Recommendation:||Provides update on California's May 2013 personal income tax collections.|
California personal income tax (PIT) collections for the month of May are on track to finish the month ahead of the Governor’s projections. May is a minor PIT collection month—with the bulk of receipts generated from PIT withholding (generally, withholding from employee paychecks). June, by contrast, is a major PIT collection month, with the bulk of June receipts to be generated from estimated taxes paid by individuals on capital gains and business income. As a result, June collections will be an important harbinger of 2013 capital gains income for the state’s high-income taxpayers.
On Track to Finish Month $500 Million Above Administration Estimates. As of this afternoon, the state has collected $3.668 billion of PIT revenues in May, net of refunds (all funds). For the entire month, the administration projected in the May Revision that the state would collect $3.091 billion (all funds). One Franchise Tax Board (FTB) collection day and two FTB refund days remain to be tabulated for the month. An unexpectedly large FTB refund day could, hypothetically, reduce the current revenue total somewhat. If, however, the remaining days' totals are similar to those of the last week, PIT collections would end the month at somewhat over $3.6 billion. Accordingly, the state is on track to finish May with PIT collections about $500 million (around 15 percent) above the Governor’s projections.
Healthy withholding trends are the key reason for the May results. Withholding for May 2013 has totaled about $3.48 billion, which is $67 million (2 percent) above May 2012 levels, despite the fact that May 2012 is believed to have included a few hundred million dollars of nonrecurring PIT withholding resulting from Facebook, Inc.’s initial public offering.
Administration Forecasts a Relatively Weak June for PIT Collections. The administration’s May Revision revenue forecast assumes that June PIT collections will be relatively weak, compared to the prior 2013 estimated tax payment month of April. In April 2013, for example, PIT estimated payments were $417 million (26.6 percent) above the level of estimated tax collections during April 2012. By contrast, the Governor’s May revenue forecast projects that June 2013 PIT estimated payments will be only $188 million (4.7 percent) above June 2012 PIT estimated payments. Over the last nine years, there have been no years in which the year-over-year growth rate of estimated payments declined so much between April and June. (In 2011—the closest example during this time period—June estimated payments were up 20.4 percent on a year-over-year basis, compared to a 23.6 percent year-over-year growth rate for April estimated payments. In 2011, the stock market was basically around the same level on June 15 as it was in early January, which might help explain the trend that occurred that year.) If, however, June 2013 estimated payments finish 26.6 percent above June 2012 levels (the same year-over-year growth rate recorded in April), this would result in PIT revenues for the month of June being about $900 million above the Governor’s current projections.
June Results Will Not Be Known Until After June 15 Budget Deadline. The State Constitution requires the Legislature to submit a 2013-14 state budget to the Governor by Saturday, June 15. This year, owing to the fact that June 15 (the typical deadline for second-quarter estimated PIT payments) is on a Saturday, the second-quarter estimated payment deadline is on Monday, June 17. Accordingly, solid information on the volume of June estimated PIT payments is not likely to be available until about June 19 or June 20—several days after the Legislature’s budget deadline.
(On June 5, we posted an item discussing FTB's preliminary tally of May PIT collections here.)