State General Fund revenues continued to perform well in December, increasing by 10 percent relative to the previous year and by 5.9 percent on a year-to-date basis. Growth was driven by nonwithholding payments, which tend to be a volatile revenue source, and Secretary of Finance Richard D. Brown cautioned in his revenue report that the state’s revenue situation will be clearer after January collections are tallied, in part due to taxpayers splitting estimated tax payments between December and January.
Individual income tax withholding collections dropped in December relative to the previous year, but December 2017 included one less deposit day than December 2016. On a year-to-date basis, individual withholding has grown by 3 percent, behind the forecast of 3.5 percent growth. By contrast, individual nonwithholding collections grew by 144.7 percent in December and are running far ahead of the annual forecast of 4.3 percent, with year-to-date growth of 30.6 percent. However, Secretary Brown noted in his memorandum that some of this growth may be attributable to taxpayers making payments ahead of schedule (in December rather than January). Sales tax collections, representing sales in November, were flat in December, but January collections, reflecting holiday shopping in December, will provide more clarity in this category as well. In an encouraging sign, sales tax revenues have grown 3.8 percent on a year-to-date basis, outpacing the forecast of 3 percent growth.
Newly-appointed Secretary of Finance Aubrey Layne made a presentation on the December revenue report and the potential effects of federal tax reform to the House Appropriations Committee on January 15. He struck a tone of cautious optimism in his remarks, noting that revenues are trending ahead of the forecast, but that several elements of uncertainty remain, such as the possibility of another round of federal spending cuts under sequestration and the prospect of a potentially-overdue downturn in the business cycle as the national economy continues an unusually long period of expansion. He reported that the Department of Taxation is in the process of determining the effect of the recently-enacted federal Tax Cuts and Jobs Act, and although he expects an overall positive effect on state revenue, he suggested that a full year of tax return data may be necessary before the full impact of the federal legislation on taxpayer behavior may be known. Appropriations Chairman Chris Jones similarly stressed the need for a cautious approach to revenue projections based on the December windfall and anticipated future growth, suggesting that he would prefer to “under-promise and over-deliver.”
Secretary Brown’s memorandum is available here and Secretary Layne’s presentation is available here.
VACo Contact: Katie Boyle