Tax receipts rise nearly $2 billion

State House News Service

Updated: Jul 19, 2011 1:44 PM

State tax collections rebounded strongly last fiscal year, rising 10.6 percent or nearly $2 billion more than the year before and making it likely that a small, mandated reduction in the income tax will be triggered.

Tax collections in June rose 5.2 percent over June 2010, up $106 million for that month alone. And fiscal 2011 collections of $20.507 billion fell only $128 million shy of the revenue estimate used in the fiscal 2012 budget signed last week by Gov. Deval Patrick, which means that unless collections suddenly and unexpectedly retreat, state government will almost immediately start ringing up a revenue surplus.

The strength of collections may also trigger a reduction in the income tax from 5.3 to 5.25 percent. Senate President Therese Murray said Monday she expected to know more about the tax cut in October.

Massachusetts Taxpayers Foundation President Michael Widmer said Tuesday the collections make it “likely” the tax cut will take effect and said he believes the reduced tax rate should not be blocked. Voters more than a decade ago ordered a 5 percent income tax but lawmakers froze the rate cut in 2002.

Under state law, the tax rate will fall to 5.25 percent if growth in fiscal 2011 inflation-adjusted baseline revenues over fiscal 2010 exceeds 2.5 percent and if for each consecutive three-month period starting in August and ending in November 2011 there is positive inflation-adjusted baseline revenue growth as compared to the same three-month period in 2010.

State documents say a final determination about the tax cut will be made by the revenue commissioner on Dec. 15, 2011. State officials say the tax cut, which would take effect Jan. 1, 2012, is worth between $52 million and $56 million in fiscal 2012 and between $111 million and $117 million in fiscal 2013.

While Massachusetts’s unemployment is still relatively high at 7.6 percent and the nation’s economic recovery has been weak, the fiscal 2011 collections reflect a state economy "that grew noticeably stronger over the past 12 months," Revenue Commissioner Navjeet Bal said in a statement.

The steep rise in collections exceeded the revenue estimate lawmakers and Patrick used for fiscal 2011 spending purposes by $1.43 billion. However, a string of supplemental budgets approved throughout the fiscal year will cut into the state’s expected fiscal 2011 surplus, which nonetheless will bill sizeable.

Gov. Deval Patrick’s budget chief, Secretary of Administration and Finance Jay Gonzalez, said in a statement that the fiscal 2011 collections “are a reflection of a stronger-than-expected economic recovery and are very good news for the state's balance sheet.”

Gonzalez said the administration was finalizing its non-tax revenue and spending exposures and planned to file a final fiscal 2011 spending bill once the review was completed “within the next couple of weeks.”

A “significant portion” of the fiscal 2011 surplus should be deposited into the state’s rainy day fund, Gonzalez said, because a “large portion” of above-benchmark revenues are attributable to taxes collected on capital gains and other investment returns that may not recur in fiscal 2012.

Gonzalez was unavailable to discuss the potential tax cut or total fiscal 2011 supplemental spending.

Widmer cautioned that last year’s state budget was balanced with about $1.5 billion in one-time revenues, claimed the fiscal 2012 budget underfunded the massive Medicaid account, and warned of potential impacts from slowing economies in Europe and the outcome of talks in Washington over deficit reduction plans and raising the nation’s debt ceiling. Still, he said, the $2 billion uptick in revenues was positive.

“We’re in a very uncertain period,” Widmer said. “There are a number of risks and cautions but it’s clearly good news.”

The tax data released Tuesday showed:

-- Compared to fiscal 2010 personal income tax collections in Massachusetts totaled $11.58 billion, an increase of $1.47 billion or 14.5 percent.

-- Withholding taxes grew $574 million, or 6.5 percent.

-- Income tax estimated payments of $1.86 billion, which include revenue from capital gains, dividends and interest, rose $373 million or 25.1 percent.

-- Sales tax receipts, which help fund the state transportation and school construction efforts, were up $295 million in fiscal 2011, or 6.4 percent. The state sales tax rate was increased from 5 percent to 6.25 percent in 2009. Regular sales tax collections were up 5.9 percent, meals tax collections increased 7.1 percent and motor vehicle sales tax receipts rose 7.9 percent.

-- Fiscal 2011 corporate and business tax collections totaled $2.23 billion, up 5.1 percent.

-- Corporate excise tax collections totaled $1.95 billion, up $351 million or 21.9 percent.

-- Tax refunds of $1.4 billion were down $101 million or 6.7 percent.

-- Income tax payments with returns and bills of $1.69 billion grew $432 million or 34.2 percent.

Copyright 2012 State House News Service. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Political Pulse

We welcome your thoughtful comments. Be the first to participate in the discussion. All comments will display your username and avatar.