State revenues came in at a healthy 7 percent growth rate for November but a look inside the numbers gives every reason to be concerned as national budget inaction is transferred into apparent low consumer and business confidence.
Exhibit A is the individual income tax collection category, some 50 percent of state revenues. November’s growth rate was only 2.6 percent, the lowest rate this entire fiscal year so far, five months. The positives included individual refunds being down some $26.5 million and individual tax categories (including estimated payments) up $3.5 million. But both withholding payments and individual income tax assessments were down a total of $13 million.
Exhibit B is an unusual increase in the amount of increase in sales tax distributions in November accounting for an increase of $58 million, or 14.8 percent. This increase influenced the overall growth rate for the month and probably made it appear a better month than it really was. In the past, local governments received estimated amounts of their sales tax collections that were corrected periodically. Last November was one of these corrections to the tune of $18 million.
Improved technology at the Department of Revenue has made these monthly estimated payments more accurate so that there is no need for much correction. In short, this month’s sales tax figures were higher due to a process change, not because of anything related to the economy. It should be noted, however, net sales taxes would have been up 10.2 percent without the previous adjustment.
Motor fuel taxes for November were up a total of 6.8 percent, or $5.2 million. Corporate income tax collections were up $4.1 million, but are better viewed year to date or quarterly. Tobacco tax collections continued to trend upward showing an increase of 6.8 percent, with alcohol beverages category continuing to trend downward at -9.1 percent.
So, November revenues totaled $1.356 billion, an increase of $88.2 million, but $16 million of the increase can be attributed to a sales tax increase larger than the trend due to differences in local distribution.
Year to date trends may reflect national confidence gap
While an overall 6.8 percent growth for the first five months of FY2012 may seem impressive, there are some reasons to first believe the true growth rate is something less than that and second that there are some disturbing trends that do not bode well for the rest of FY 2012.
But though, it is a positive that the state has taken in some $6.7 billion in tax collections for an overall increase of $427,523 million.
“That’s a good thing” as Martha Stewart says.
But when we subtract the $91 million in reduced individual income tax refunds back in July under July of 2010, the overall increase in revenues shrinks to $336.5 million, or an overall growth rate of 5.3 percent, but still not too shabby. Actually total refunds are down some $142 million for the five months, but I choose to use only the amount I can point to as carry-over refunds in July 2010.
Disturbing trends in individual income tax collections
Year to date, individual income tax collections are up $304.1 million, or 9.4 percent. When you reduce that figure by the refund difference explained above, that gain becomes $218.1 million gain, or 6.7 percent. That is still pretty strong, but there are some trends in payments and refunds that seem to forecast a weaker growth rate in the future and leads me to believe the 2.6 percent growth rate in November may be a sign of things to come.
First, exclusive of the refunds difference carried over in July 2010 versus July 2011, the amount of decrease in refunds for the other four months of the year is only $28 million or so and the number of refunds is down only about 83,000.
More importantly, individual income tax payments are down in number in November by 9,228, the first month there has been a decrease this year. Also, November was lower in dollar payments for the first time for the month by some $10 million.YTD, tax payments are up only a net 3.6 percent exclusive of refunds, so you can readily see how low the growth in collections is.
Sales tax, motor fuel and other collections
Before this month’s sharp 14.8 percent jump, net sales tax collections to the state was a cumulative 2.8 percent and has not totaled much over 3 percent in any of the previous four months. November’s numbers belie the apparent true collection rate of 3 percent or less. So the YTD rate of increase at 5.1 percent is deceiving.
Motor fuel taxes are up YTD 6 percent, or some $23.7 million due to the sales tax increases based on higher per gallon prices. Consumption, measured by the excise tax per gallon, has declined -7.5 percent, or -$14.4 million.
Corporate taxes are down YTD some -16.5 percent, or -$19.4 million, and there are disturbing trends here as well. Corporate tax refunds are up some $31 million, or 27.8 percent, which dwarfs the small increase in payments of $7 million. This is partly a lingering effect of the recession as corporations carry over their losses from prior years. So the state continues to pay out more to corporations in refunds than it is receiving in payments.
And lastly, we have the tobacco and alcohol tax opposite trends. Tobacco taxes are up YTD by some 15.3 percent, but that only totals an increase of $12.7 million.
Conversely, alcoholic beverages taxes are down -13.2 percent, or some -$9.3 million YTD. As discussed last month, the conundrum of the decline in malt beverages continues, having declined some -30.3 percent since the first of the fiscal year and extending what has become an eight-month decline extending back to March. No explanation for the decline of beer sales has been forthcoming.
So, it remains to be seen if Christmas sales will drive increases in sales tax collections as it also remains to be determined if national developments will continue to drive down consumer and business confidence and continue negative trends in business hiring and profits.
I may be reached at
234 State Capitol, Atlanta, GA 30334
(404) 656-5038 (phone)
(404) 657-7094 (fax)
E-mail at Jack.Hill@senate.ga.gov
Or call toll-free at
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