May income taxes far above projections

Personal income taxes 24% above projection; corporation tax 124% above projection

Preliminary tax agency data shows that California personal income tax (PIT) collections in May were $1.4 billion (23.9%) above projections, and corporation taxes for the month were $752 million (124.3%) above projections.

The figures above reflect the administration’s May Revision projections, which accompanied the Governor’s revised budget proposal last month.

As the Legislative Analyst’s Office pointed out, PIT withholding was very strong in May, and that accounted for $1.2 billion of the $1.4 billion PIT gain for the month. Corporation tax gains were spread across elective pass-through and other payments, as well as lower refunds.

June 17 is a major tax payment deadline. Collections that week could show whether some of the May windfall was due to “timing” (that is, money previously assumed to be paid to the state treasury in June, but which “showed up early” in May).

Higher revenue collections tend to reduce projected deficits, of course. In a typical year, about 40 cents of every added revenue dollar goes to schools and community colleges pursuant to Proposition 98. The Governor recently proposed suspending Proposition 98 in 2023-24 (the current fiscal year), as permitted by Section 8 of Article XVI of the California Constitution. Suspending Proposition 98 creates “maintenance factor,” a constitutional obligation to increase school funding in the future. A larger portion of tax revenue growth goes to schools until a maintenance factor obligation is paid off.