Pennsylvania General Fund revenue collections fell slightly short of estimate in January, with sales tax coming in substantially off the mark. Revenues remain above projections for the 2012-13 fiscal year — now exceeding targets by $153 million, or 1.1%.
Revenues for the fiscal year exceed the previous year at this time by $748 million, or 5.4%. This year-over-year growth is likely to shrink in the second half of 2012-13, as significant business tax cuts kicked in with the start of 2013.
While the January shortfall was small ($18.8 million, or 0.8% of the total projected), it could give state lawmakers pause in developing next year’s budget — particularly if the shortfalls continue. March and April, important revenue months, will be watched closely.
Sales Tax Down, Significantly
January is typically the most important month for sales tax collections, the second largest single revenue source in the General Fund. Collections in January were substantially off the mark — coming in $59 million, or 6.9%, short of the monthly target. Sales tax collections have missed their targets every month in 2012-13 and are now, in total, $184 million, or 3.4%, lower than expected.
Sales tax revenues in 2012-13 were estimated to grow by $447 million, or 5%, from the previous year. So far, the growth has been much less robust — only exceeding collections in 2011-12 by $73 million, or 1.4%. January 2013 collections were $17 million, or 2.1%, lower than collections in January 2012.
As these collections tend to be steady across the year, it seems unlikely that sales tax receipts will be able to increase enough to meet fiscal targets.
Personal Income Tax Up, Modestly
Collections of the General Fund’s largest revenue source, the personal income tax (PIT), were slightly higher than expected in January, helping narrow the shortfall created by sales tax collections. In January, PIT collections were $31 million, or 2.6%, higher than expected — in what is usually one of the larger months of PIT collections. For the year, PIT collections are now $76 million, or 1.3%, higher than estimate.
Corporate Taxes Up But Likely Heading Down in Months Ahead
January marked another month of corporate tax receipts exceeding estimate in 2012-13. For the month, corporate tax collections were modest, $119 million, but they exceeded estimate by $24 million, or 24.8%. This is similar to what has been seen all year, as corporate taxes are now $267 million above estimate, or 20.3%. Compared to the previous fiscal year, corporate collections are up $277 million, or 21.2%.
This type of growth in corporate taxes is likely to dissipate in the coming months as significant tax rate cuts kick in. The rate of the capital stock and franchise tax (CSFT), which brought in over $1 billion per year as recently as 2007-08, was cut January 1, 2013 from 1.89 mills to 0.89 mills, a cut of 53%, following a one mill cut in 2012. This rate cut will result in smaller estimated payments going forward. CSFT is expected to bring in $539 million in 2012-13 — revenue that will not be replaced in coming years as the tax is slated to be eliminated altogether in 2014.
The Governor’s tax proposals could continue this downward trend. In his 2013-14 budget plan, Governor Corbett proposes a multi-year reduction in the corporate net income tax (CNIT) rate, which would ultimately cost hundreds of millions of dollars of lost revenue each year. Under the plan, the CNIT rate would drop from 9.99% to 6.99% by 2025, a 30% tax cut. Unlike other proposals, this rate cut occurs without any effort to close loopholes.These reductions will shift more of the responsibility for financing the General Fund from corporations to individuals.