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.)
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.