March is always the most important month for the collection of corporate taxes because nearly half of all corporate tax dollars for the fiscal year come in at this time. While overall tax collections were on target in March 2015, a closer look shows why we need to re-think our corporate tax policies in Pennsylvania.
March bank tax collections were $59 million, or 19%, below their revenue target. Compared to March 2013 collections, bank taxes are down $67 million, or 20%. This is not how it was supposed to be. In 2013, the bank shares tax was reformed to fix unintentional loopholes in the law that arose from changes in the banking industry. The reform expanded the base and lowered the tax rate from 1.25% to 0.89%, in what was sold as being “revenue neutral”—meaning the change was supposed to neither gain nor lose revenue for the state. As we’ve seen from the results—it hasn’t worked that way. Banks pay a lot less under the revised law than they did prior to reform.
Gov. Wolf, in his 2015-16 budget plan, calls for reforming the reform—pushing back the tax rate to the pre-reform level and collecting the tax the Commonwealth lost over the last few years.
The second area where the ramifications of policy decisions are evident is in capital stock and franchise tax (CSFT) collections. In March 2015, the Commonwealth received $33 million from the CSFT, in what is typically the largest month of collections for that tax. In March 2009, during the height of the recession, Pennsylvania had CSFT collections of $121 million. In March 2007, the state collected $175 million in CSFT revenue. Pennsylvania is experiencing a massive loss of revenue—all due to a steady stream of CSFT rate cuts. Revenue from this tax used to total more than $1 billion a year before the Great Recession, and the CSFT is being eliminated (even under Gov. Wolf) on Jan. 1, 2016.
Overall, revenue collections in March (the single largest month for tax receipts in a fiscal year) fell short of budget targets, but only modestly (-0.2%). For the fiscal-year-to-date, General Fund collections have been higher than expected, exceeding estimates by $368 million, or 1.7%.
General Fund tax revenues in March totaled $4.2 billion, an increase of $125 million, or 3.1%, from a year ago. Compared to the prior fiscal year at this time, tax revenues are $946 million higher, or 4.7%. Every major category of taxes has grown since last year—a sign of the growing state and national economies.
Revenues for 2014-15 are on track to meet their targets. But April is another critical month for tax collections and could dramatically add to or subtract from the current surplus. As we grow closer to the end of the fiscal year, revenue surpluses or shortfalls can have a big impact on budget negotiations for the next fiscal year. We’ll keep watching and keep you posted.