A look ahead to California October tax receipts
Due to IRS' unprecedented extensions, $52 billion of revenues are projected
California’s October 2023 state revenue receipts are expected to be the biggest of any U.S. state in history. This results from the Internal Revenue Service’s unprecedented nine-month delay in key tax payment deadlines, primarily benefiting very wealthy households and big corporations that pay the bulk of the state’s income taxes. In this note, I discuss what I will be watching in this month’s data.
What revenues are projected for October 2023?
The 2023 state budget reflects the Newsom Administration’s May 2023 revenue projections. In total, the budget anticipates $52.3 billion of General Fund revenue receipts in October. (This $52.3 billion figure includes the $41.7 billion of personal and corporate income taxes delayed from prior months to October, the majority of which relate to 2022 income tax liabilities.) This would be more than three times the revenue haul for a typical month in California.
The $52.3 billion includes personal income tax (PIT) withholding collected by the state’s Employment Development Department, PIT payments and refunds at the Franchise Tax Board (FTB), corporation tax (CT) payments and refunds at FTB, sales and other taxes collected by the California Department of Tax and Fee Administration, and other revenues.
What revenue data should we watch?
The payments and refunds affected by the IRS’s deadline extensions affect the FTB’s tallies. Accordingly, FTB’s daily collections report will be the focus of my attention. Here is what the 2023 state budget projects for FTB collections and refunds for the month of October 2023, compared to October 2022.
Accordingly, as we approach and then pass the key October 16 deadline date, I will be looking at daily FTB data to see whether they are on trend to fall short of or surpass these growth projections. For example, I will be watching to see if PIT collections are on trend to be at least 8.61 times the amount received by FTB last October (that is, up 761%).
When we will have a good idea how things have gone?
Typically, it takes up to one week after key deadlines for FTB to receive and process the bulk of payments. Accordingly, I expect we will have a pretty good idea of where things are headed on about Monday, October 23.
What happens if collections run billions short of projections?
California’s cash position in 2023 has been the strongest of any state in history. Because of this strong cash position, no immediate effects for state finances are likely if collections are short of projections.
If collections are billions short of projections, that likely means that 2022 tax liabilities were less than previously assumed. That, in turn, will put downward pressure on the next set of formal state revenue estimates: from the Legislative Analyst’s Office (LAO) in its mid-November Fiscal Outlook and from the Newsom Administration when the Governor introduces his 2024-25 budget plan on January 10, 2024. In other words, weak October results probably will translate into a larger deficit projection for 2024-25. The administration already anticipated a roughly $15 billion budget challenge in 2024 in its most recent set of multiyear budget projections. Similarly, even with some positive recent revenue trends, LAO has noted a deficit is still likely in 2024.
What happens if IRS changes due dates again?
IRS now routinely grants prolonged tax deadline extensions, primarily benefiting high-income and big corporate taxpayers, in response to declared major natural disasters. If IRS and FTB were to extend further the October 16 deadline for any group of California taxpayers prior to October 16, that would affect this month’s receipts. I will note any such changes in my daily updates.
Extensions already granted by IRS for residents in other states (such as Hawaii) will affect California non-resident return tallies to some extent, as could the challenge that tax agencies have in sorting and processing the unusual variety of forms and payments now being submitted in October. It is difficult to say how big those effects will be.
When will Jason post daily updates?
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