As the numbers for June came in and wound up fiscal year 2013, the total of $17.0 billion showed the highest revenue collections since 2007. And the net gain over FY2012 collections of $951.4 million showed an improvement of $200 million over the FY12 gain of a year ago.
The rate of growth of 5.9 percent met revenue projections and the budget passed by the legislature and will mean approximately $300 million to be added to the revenue shortfall reserve (RSR). The 5.9 percent growth rate was a full 1.1 percent over the growth rate a year ago.
So, with an increased volume of moving parts to the revenue report now, it certainly makes sense to look inside the numbers and examine what is going well and what areas require additional study. Additionally, the RSR and its growth are important as we consider options for the FY15 budget with the many pressures budget writers will face from a spending standpoint. Also, as policy makers study tax reform proposals, it is vital we really understand revenue trends, strengths and weaknesses.
The revenue report — individual income taxes
Individual income taxes showed solid 7.5 percent growth in FY13, producing $8.7 billion.
Individual withholding payments were up $354 million, or 4.1 percent, reflecting growing payrolls. Individual estimated payments were up as well by $134 million or 23.5 percent, also reflecting improving economic activity. The other individual tax categories were also up $183 million.
Refunds were up by $60 million but only by 2.9 percent. Actually the number of refunds was down for the fiscal year by some 166,000, which is significant, even as the amount paid out went up $60 million.
It is important to note a phenomenon that many states and the federal government saw in their tax collections. Many employers and individuals were aware that the fiscal cliff that occurred on Dec. 31, 2012, would increase individual tax rates. As a result, many timed bonus payments or sold assets before the fiscal cliff hit in order to get a better tax rate. It is difficult to tell how much this impacted Georgia, but reports from Illinois indicated it could be almost $1.3 billion there in additional tax revenue to that state.
Sales and use tax
If there is an area that is difficult to fathom right now, this category qualifies. FY13 saw the implementation of the new and used car title fee replacing sales taxes and local ad valorem taxes as well as the sales tax exemption on energy in manufacturing and agricultural production.
The sales tax category, however had been lagging before these changes went into effect, and the challenge now is to glean information on sales taxes that is not obscured by the new exemptions and auto tax changes. This information takes on a whole new importance with the discussion being conducted by some leaders concerning the reduction and/or elimination of the state income tax. The presumption is that some transfer to the sales tax would be made.
Net state sales taxes produced $5.3 billion of the state’s $17 billion total, or about 31 percent. This total came after one quarter of the year of the vehicle tag change, which reduced the sales tax collection figure. Sales tax collections were down 0.1 percent compared to last year. Just for reference purposes, if you add in the gain in the title fee category, presumably due to the beginning in March 2013 of the title fee in lieu of sales taxes, an adjusted growth of about 2.1 percent in net sales taxes would have been shown. So, with that adjustment, the sales tax category looks better.
Inside the sales tax figures, positive categories for the year include food and grocery up 5.4 percent, general merchandise up 2.7 percent and accommodations up 6.6 percent. Decliners included car and auto, minus-12.1 percent (title fee change), manufacturing, down 0.5 percent, other services down 18.0 percent and utilities, down 4.2 percent.
It is also interesting to note that corporate income taxes grew 35 percent or $207 million over FY12. In years past this category was difficult to read because of the ability to write off losses from prior years. But with estimated payments rising by 33 percent and refunds down 42 percent, it appears as if companies are rebounding.
The revenue shortfall reserve
One of the top key numbers the bond underwriters look at is a state’s “rainy day fund.” One of the acts of faith the underwriters have shown in Georgia is the belief that Georgia would rebuild its reserve as the recession recedes.
This, of course, is the “spend it or save it” dilemma that every state will face as they emerge from the recession.
Georgia’s RSR totaled about $1.6 billion when the recession began in 2007, and it quickly disappeared when the bottom dropped out of the state’s economy. The RSR dropped to about $50 million at its lowest point, or about one day’s requirement to operate the state.
With the gain shown in FY13, the RSR may climb from $600-$700 million for the first time in five years or so. So the leadership of the state, faced with pressures for new spending, will have to resolve what is the right level of saving, versus the top priorities in spending.
I may be reached at
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E-mail at Jack.Hill@senate.ga.gov
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