By now any regular reader knows that about one half of every state revenue dollar comes from a category known as individual income taxes. It actually is a catch-all category that includes every entity filing as an individual. It includes withholding taxes on payrolls, quarterly and other filings from individuals filing as individuals and small businesses filing as Subchapter S corporations or any other form filing not as a corporate taxpayer.
Georgia has enjoyed robust growth in individual income tax collections over the years even in the face of level or declining sales tax collections. For the last four years, individual income tax collections have ranged from 6.6 percent growth in FY2005 to 10.2 percent in FY07. Georgia had some bumpy years in the downturn following 9/11. FY02 showed a -6.9 percent figure and FY03 showed a -2.9 percent for individual income taxes. But the slowdown in the past eight months or so has seen a dramatic drop in the dollars collected in this category.
This week we examine Individual income tax collection trends and also look at the corporate tax category as well.
FY08 (July 2007-June 2008)
For the fiscal year, individual tax collections, at $8.85 billion, barely broke even with the previous year, growing slightly by $25 million or 0.3 percent. Inside the category, withholding taxes grew by $272 million or 3.3 percent. Income tax assessments increased by $41 million or 24 percent, but net refunds were up $230 million or 12.7 percent and the number of refunds increased by 7 percent. Individual estimated payments were down $60 million or 4.4 percent. So the trends for the year in this category are all in the wrong direction — payments coming in are down, refunds going out are up.
For the six months of what is known as “tax season” or January-June, disturbing trends showed as well. Net individual payments were down by $222 million or 4.8 percent. There were 1.9 million payments processed compared to 1.88 million payments processed in the same six months in 2007 but increased in dollars by only $20 million or 1 percent. So, there was a healthy increase in the number of payments but not the amount paid in.
FY09 begins for individual income tax collections
For July, both the number and amount of individual income tax payments declined. There was a reduction in the number of payments of -4.4 percent and a reduction in net individual income tax collections of $40 million or -6.5 percent.
Refunds for July were up in number by 19.8 percent and up 15.1 percent in dollars. Inside the numbers, withholding taxes were down $15 million or 2.2 percent and net individual refunds were up $23 million or 22.7 percent.
For August, overall collections were down $45 million or -6.6 percent. Numbers of payments were down .7 percent and the amount paid in was negative at -5.5 percent. Inside the individual income tax figures for August, withholding taxes were down 3.1 percent, Individual income tax assessments were down 49 percent or $20 million, and refunds were up $29 million or 21.1 percent.
So, businesses are paying out less in labor expenditures and withholding less, so those tax collections are down and the businesses themselves are reporting less income to be taxed while refunds are up.
Corporate tax collections
Corporate tax collections amounted to 5.8 percent of revenues in FY08. They are historically cyclical by month and usually have a high month about one in three. Corporate tax collections have been stormy the past three years ranging from 49.2 percent growth in 2005 to 18.1 percent in 2007. The 2002 slowdown saw negative corporate tax collections that averaged -15.5 percent.
For the 2008 fiscal year, corporate income taxes declined by -$76 million or -7.5 percent with total collections falling below $1 billion to $943 million. Inside the numbers for corporate tax collections, corporate estimated payments decreased by -$94 million or –9 percent. Collections from corporate assessments were down $35 million or 66.8 percent. If there is a bright spot, net corporate refunds issued declined by -$41 million or -20.2 percent. So, FY08 receded from the level of exceeding collections of over $1 billion as in FY07.
In July, corporate tax collections were down by -62.2 percent or -$21 million and the state only collected $12 million for the month. Corporate estimated payments declined by -$10 million or -30.6 percent. Collections from corporate tax returns were down -$3 million or -46.3 percent.
For August, corporate tax collections decreased by $15 million or 33 percent. Estimated corporate payments decreased by 15.8 percent or -$8 million. Net corporate refunds were up $13 million or 76 percent. So corporations were reporting less and claiming higher refunds for August.
When you look inside Georgia’s main revenue category, individual income taxes, the trends are definitely on the decline — payments coming in are down and refunds going out are up.
The state of business as viewed in corporate tax collections is also in decline with collections going down and refunds going up. What is not clear yet is if the state has hit the bottom of the slide.