New Budget Director Sees Federal Tax Law Impacts In Latest State Revenue Data

A drop in state personal income tax revenue last month is likely tied to changes in filing behavior linked to the federal tax law overhaul, according to the Office of Budget and Management.

Overall tax intake in January was $50 million below estimates updated last July, preliminary revenue data show. The culprit was the personal income tax category, which came in $77.35 million, or 7.1%, less than expected but was offset somewhat by overages in other tax categories. (Preliminary Revenue Charts)

“We’ve observed some changes in the way people are making their estimated payments” since the federal tax law changes went into effect, new OBM Director Kimberly Murnieks said.

“That seems to have been apparent in December 2018 and January 2019 estimated payments and until we see the final data that comes in in April we won’t be able to parse out much more detail about that. But it seems there has been possibly some changes in how people are approaching their quarterly estimated payments.”

Given the multitude of changes in the federal tax code, analysts think quarterly filers may be holding off until the April 15 deadline to true up with their total liabilities. Among the changes noted by OBM is the $10,000 cap on deductions for state and local taxes.

The budget office said other states are also seeing drops in estimated payments, and Ohio’s total now lags estimates for the fiscal year to date by $160 million. Another potential cause for the underage in PIT is a decline in non-wage income.

Overall, however, state coffers remain on course with estimates with five months left in FY 2019, OBM data show. While the PIT is indeed a drag on total tax receipts – the category is lagging year-to-date expectations by $121.5 million, or 2.2% – a strength in the sales tax and others have tax intake running at $78.2 million, or 0.6%, ahead of schedule for the fiscal year.

Ms. Murnieks couldn’t say whether her predecessor’s year-end revenue surplus projections would hold up at this point, but expressed confidence regarding the state’s ongoing financial situation.

“Overall the tax revenue remains solid,” she said. “We’re still feeling good about the FY ’19 year-end picture…. The size of the fund balance at the end of the year I think something is we’re still looking carefully at.”

“We’re looking at all the data and we’re also in the process of forecasting ’20 and ’21 for Governor (Mike) DeWine’s executive budget,” the director added.

Sales tax receipts, now the main revenue source for Ohio thanks to the prior administration’s tax shifting policies, continue to be a bright spot in the state’s financial picture, with the overage so far this fiscal year more than offsetting the apparent slump in the PIT.

The category came in slightly above estimates for January and stands at $142.6 million, or 2.3%, ahead of OBM’s schedule through seven months of FY 2019.

Of the nearly $13.6 billion in total tax collections this year, sales taxes make up about $6.3 billion and personal income taxes about $5.4 billion, according to budget office totals.

Gongwer Volume 88, Report 26, Article 3