|Budget Issue:||California's December income tax collections were quite strong|
|Finding or Recommendation:||This provides an update on December 2013 personal income tax and corporation tax revenue collections for the State of California.|
December Income Taxes Results Were Quite Strong. Preliminary data from the Franchise Tax Board (FTB) indicate that December 2013 personal income tax (PIT) and corporation tax (CT) revenue collections were a combined $1.6 billion (20 percent) above monthly projections included in the state's 2013-14 budget plan. (Those budget act projections, finalized in June 2013, were based on the administration's May 2013 revenue estimates.) For the fiscal year to date, these two revenue sources combined are running $2.1 billion (8 percent) above the budget act projections. Data for other tax sources in December will be available later this month, and the Governor will release the administration's updated revenue projections later this week, when he introduces his proposed 2014-15 state budget plan.
Methodology Note. Budgetary revenue estimates and tracking are based on "agency cash"--which tracks income tax revenues in real time as received by tax agencies--and this method can result in materially different results from those listed under other revenue tracking methods. Preliminary agency cash reports, such as the preliminary December 2013 FTB data discussed below, often do change in subsequent revisions as additional data is reconciled and reviewed. Agency cash data is listed in most months by the Department of Finance in its Finance Bulletin, which is a key information source for overall state revenue trends.
December PIT Revenues $1.4 Billion Above Budget Act Projections. December is an important PIT collection month, as high-income taxpayers (major recipients of capital gains and business income) begin to make their final estimated payments for the calendar year, which are due on January 15. Estimated payments in December totaled $3.0 billion, or about $1.2 billion (65 percent) above the administration's budget act projections for the month. In addition, PIT withholding was $277 million (6 percent) above the budget act projections. In total, for all PIT sources, PIT revenues in December totaled $7.9 billion, or $1.4 billion (21 percent), above the budget act projections. For the 2013-14 fiscal year to date, PIT revenues have totaled $27.8 billion, or $2.0 billion (8 percent) above budget act projections.
Both the budget act projections and our office's November 2013 revenue projections assumed that net capital gains received by California residents would decline substantially in 2013, given that 2012 results were elevated due to changes in federal tax policy and the Facebook initial public offering, among other factors. We note that December 2013 estimated payments--likely based largely on capital gains income in 2013--were up slightly (0.6 percent) from the amount of estimated payments received in December 2012.
January is typically an even bigger estimated payment month, due to the January 15 payment deadline. The budget act projections assumed that January 2014 collections would fall by 48 percent ($3.6 billion) below January 2013 collections. Hypothetically, if January 2014 collections were equal to January 2013 collections, total PIT collections for this month alone would likely exceed budget act projections by around $4 billion, especially given that withholding is also running ahead of January 2013’s pace early this month.
December is a major CT estimated payment month. Collections for the month were respectable at $1.3 billion, or $182 million (16 percent) above the administration's budget act monthly projections. Specifically, refunds were far below the administration's projections, resulting in the positive results overall. For 2013-14 to date, CT revenues of $2.4 billion are $55 million (2 percent) over the administration's budget act estimates.
For both PIT and CT revenues, the state's complex accrual policies make it difficult to translate monthly agency cash totals to prospective revenue results for each fiscal year. We will discuss revenue results more in the coming weeks as January estimated payments come in and in response to the Governor's budget proposal.