Despite Low Unemployment in RI, Revenues Miss Estimates — Personal Income Tax Off 2%

GoLocalProv Business Team

Despite Low Unemployment in RI, Revenues Miss Estimates — Personal Income Tax Off 2%

Through the first four months of the 2019 fiscal year, there are some early signs of revenue problems. According to data released by the Rhode Island Department of Revenue, personal income tax payments are off 2 percent and additional trouble may be brewing due to the failure to launch sports betting on time.

The missed income numbers hit during a period in which a record number of Rhode Islanders are working.

The report finds that general revenues for October were $10 million less than expected.

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Paul Dion of the Revenue office tells GoLocal that one impact may be due to changes to federal tax law. Some taxpayers pre-payed real estate property tax in 2017 calendar to take advantage of the now limited real estate tax deduction of $10,000. Now, some are receiving refunds in the 2019 FY. Refunds are running 43 percent higher than estimated.

What isn't reflected is the new sports betting numbers -- and they aren't in the mix for two reasons.

First, the lottery transfer numbers are reported a month late so the only September's lottery numbers are in the new report. Second, sports betting was delayed nearly two full months, thus revenue to the state -- budgeted at $23 million could be adversely impacted as October and November are the busiest times in sports betting due to baseball's World Series, the beginning of the season for the NBA, NHL, and men's college basketball. In addition, much of the college and pro football season falls in those missed nine weeks.

"The primary sources of the variance are personal income tax revenues which are down $9.0 million, or ‑2.0 percent, from expectations; insurance company gross premiums tax revenues which trail expectations by $6.0 million or ‑20.9 percent; business corporation tax revenues which are $4.9 million less than expected or ‑8.4 percent; and public utilities gross earnings tax revenues which are $2.4 million, or 9.5 percent, below the fiscal year-to-date through October estimate," said the RI Department of Revenue. 

Read the Report Here

The report compares the adjusted general revenues by revenue source on a fiscal year-to-date and monthly basis to expected general revenues by revenue source.

The Findings

Other findings from the report are as follows: 

October Year-To-Date Performance. On a fiscal year-to-date basis, the October 2018 report shows that adjusted total general revenues are slightly below expected total general revenues, based on the revenue estimates enacted in the FY 2019 budget and the Office of Revenue Analysis’ estimation methodology, with adjusted total general revenues $10.0 million less than expected total general revenues, a variance of ‑0.8 percent.  The primary sources of the variance are personal income tax revenues which are down $9.0 million, or ‑2.0 percent, from expectations; insurance company gross premiums tax revenues which trail expectations by $6.0 million or ‑20.9 percent; business corporation tax revenues which are $4.9 million less than expected or ‑8.4 percent; and public utilities gross earnings tax revenues which are $2.4 million, or 9.5 percent, below the fiscal year-to-date through October estimate.  Offsetting these shortfalls are the adjusted lottery transfer which is ahead of the expected transfer by $4.3 million or 4.7 percent; sales and use tax revenues which are $3.5 million more than expected, a variance of 0.9 percent; departmental receipts adjusted revenues which lead expectations by $3.4 million or 5.5 percent; and adjusted realty transfer tax revenues which are $1.2 million above the estimate, or 23.2 percent.  The lottery transfer reflects the first month of gaming activity at the newly opened Tiverton Casino and Hotel.

October Monthly Performance.  For the month of October, the report indicates that adjusted total general revenues are $1.6 million below expectations or a variance of ‑0.6 percent.  The primary drivers of this shortfall are adjusted business corporation tax revenues which are $2.3 million, or 16.3 percent below expectations; adjusted cigarette excise and other tobacco products tax revenues which trail estimates by $1.3 million or ‑11.2 percent; and adjusted departmental receipts revenues which lag expected departmental receipts revenues by $1.1 million or ‑5.5 percent.  A substantive positive variance was reported in the adjusted lottery transfer which is $3.8 million or 12.9 percent ahead of the October monthly estimate.

Regarding the October year-to-date performance, Director of Revenue Mark A. Furcolo made the following observations:

  • Fiscal year-to-date adjusted total general revenues through October are behind expectations by $10.0 million, or ‑0.8 percent; 
  • Adjusted personal income tax revenues are $9.0 million below expectations, a variance of ‑2.0 percent, due to lower than expected personal income tax estimated payments and larger than expected refunds and adjustments and final payments. FY 2019 year-to-date adjusted personal income tax revenues are $15.3 million, or 3.7 percent, higher than FY 2018 year-to-date adjusted personal income tax revenues were at this time last year.
  • Adjusted sales and use tax revenues through October are ahead of expectations by $3.5 million, or 0.9 percent, marking the fourth month in a row that fiscal year-to-date adjusted sales and use tax revenues have exceeded estimates. FY 2019 year-to-date adjusted sales and use tax revenues are $21.3 million, or 5.7 percent, more than FY 2018 year-to-date adjusted sales and use tax revenues were at this time last year.
  • Adjusted departmental receipts revenues are $3.4 million above the estimate, a variance of 5.5 percent; and
  • Adjusted insurance company gross premiums tax, business corporation tax, and public utilities gross earnings tax revenues are a combined $13.3 million below expectations, a variance of ‑11.8 percent. This variance is likely driven in part by the change in the estimated payments schedule for business tax payers that was implemented effective January 1, 2018.

 

Regarding the month of October performance, Director of Revenue Mark A. Furcolo made the following observations:

  • October total general revenues fell short of expectations by $1.6 million, or ‑0.6 percent, an improvement from the September 2018 performance; 
  • Adjusted personal income tax revenues are in line with the estimate for October, with stronger personal income tax finals and withholding payment revenues largely offsetting higher than expected October refunds and adjustments payments; 
  • Adjusted sales and use tax revenues for October weakened, falling below the monthly estimate by $438,086 or ‑0.5 percent;
  • September adjusted business corporation tax revenues are $2.3 million less than expected, a variance of ‑16.3 percent, while cigarette excise and other tobacco products tax adjusted revenues are $1.3 million below expectations, or a variance of ‑11.2 percent; and;
  • October adjusted lottery transfer revenues are $3.8 million more than the estimate, a variance of 12.9 percent reflecting the strong opening that the Tiverton Casino and Hotel exhibited in the month of September.  The current month’s lottery transfer is the revenue generated from the prior month’s gaming activity.

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