Reading the October tax revenue tea leaves

October is a fairly insignificant month as far as state tax collections go, but there were a few troubling signs in the latest report from the Massachusetts Revenue Department.

Overall, the state collected $1.15 billion in October, on pace with new revenue forecasts developed just two weeks ago but off $123 million from the original benchmarks used when this year’s budget was approved in July. State officials are paring back spending in response to the quickly changing economic climate.

What was disturbing about the October report was the $41 million collected in estimated income tax payments — the tax payments residents make on gains from the sale of stock and the receipt of dividends and interest. The $41 million collected was down $9 million from October last year and off $6 million from what the Patrick administration had forecasted just two weeks ago. Capital gains tax payments are highly volatile, and many analysts say revenue is likely to fall dramatically in response to the steep downturn in financial markets. (See recent post.)

Robert Bliss, a spokesman for the Revenue Department, said he was not concerned about the $6 million downturn in estimated tax payments in October because it was relatively small compared to the overall revenue forecast for this year of $20.3 billion. He said the size of the state’s capital gains tax problem is likely to be seen more clearly in December and January.

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Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Something is also going on with the state’s public utilities excise tax, or the 6.5 percent tax that gas, electric and telephone companies pay on their profits. The state paid out utility excise tax refunds of $13 million in October when it had been expecting to receive some tax payments. For the first four months of the fiscal year, tax collections from utilities were off $15 million from projections made just two weeks ago.

Again, the utility tax is relatively insignificant in terms of the overall budget. Bliss also says the agency suspects part of the problem may be that utility taxes were being classified improperly either by the companies or the agency. He said agency officials should straighten out any misclassification of taxes in the next few months.