The state’s tax revenue continues to outpace projections used by the governor and Legislature in the crafting of the new state budget, the Department of Finance revealed in its June revenue report.
“Preliminary General Fund agency cash receipts were $162 million, or 0.1 percent, above the May Revision fiscal year-to-date forecast, and were $813 million, or 5.6 percent, above the forecast in May,” the department stated. “The fiscal year-to-date overage was due largely to higher sales and use tax receipts of $279 million and higher personal income receipts of $274 million that were partially offset by lower ‘Other revenues’ of $392 million. The May Revision forecast was finalized in mid-April; therefore, the fiscal year-to-date variance in this report reflects variance from April and May.”
The revenue projections in the governor’s May budget revision were much higher than those used in his January budget. For example, the January budget projected personal income tax revenue of $137.8 billion for the 2025-26 fiscal year, whereas the May budget projected PIT revenue of $146.8 billion. Similarly, the revenue projection for sales and use tax increased from $34.4 billion to $34.5 billion, the corporation tax revenue projection went from $41.7 billion to $43.2 billion, and the insurance tax revenue projection increased from $4.3 billion to $4.5 billion. All totaled, the general fund revenue projection for the current fiscal year increased by $10 billion in the May revision.
For the state’s major sources of revenue, the department reported:
- Personal income tax revenue was $274 million (0.2 percent) above the fiscal year-to-date forecast and $970 million (13.1 percent) above the forecast for the month of May. “The fiscal year-to-date overage was due entirely to withholding ($1.2 billion, or 1.2 percent, above forecast), partially offset by lower non-withholding payments – estimated, final, and other payments – of $306 million and higher refunds of $623 million,” the department stated.
- Corporation tax revenue was $24 million (0.1 percent) above the fiscal year-to-date forecast and $21 million (1.6 percent) below the forecast in May. “The fiscal year-to-date overage was driven by lower refunds of $265 million, partially offset by lower payments of $241 million,” the department wrote.
- Sales and use tax revenue was $279 million (0.9 percent) above the fiscal year-to-date forecast.
- “Other revenues” were $392 million (14.7 percent) below the fiscal year-to-date forecast “because of the timing of a deposit to the State Controller’s Office that was projected in May but is now expected to be received in a later month,” the department stated.
Governor Gavin Newsom did not take any action this week on the main 2026-27 budget bill (AB 109, Gabriel), the budget trailer bill that includes the tax increases opposed by CalTax and a large coalition of the business community (SB 122, Senate Budget and Fiscal Review Committee), or other budget trailer bills.