State revenue came in $665 million above the recently adopted budget’s expectations during the final month of the 2025-26 fiscal year, partially due to the effects of inflation on consumer prices upon which the sales tax is imposed, the Department of Finance reported July 24.
This unexpected influx of tax dollars (1.8 percent above the projection used in the 2026-27 budget, which was finalized before the prior fiscal year ended), put total state revenue for the expiring fiscal year at $828 million (0.3 percent) above the projections.
“The overall overage in June was due largely to higher corporation tax receipts of $896 million, sales and use tax receipts of $129 million, and personal income tax receipts of $107 million, partially offset by lower ‘Other revenue’ of $398 million,” the Department of Finance reported. “The overage for the entire 2025-26 fiscal year was due largely to higher corporation tax receipts of $920 million, higher sales and use tax receipts of $410 million, and higher personal income tax receipts of $381 million, partially offset by lower ‘Other revenue’ of $790 million. June is an important month because it contains the second quarter due date for estimated payments for both the personal income and corporation taxes, as well as the prepayment for the Pass-Through Entity Elective Tax (PTET).
For the state’s top three sources of revenue, the department reported:
- Sales and use tax revenue was $129 million (3.6 percent) above the forecast in June and $410 million (1.2 percent) above the forecast for the entire fiscal year. “Strength in sales tax in May and June was likely due in part to the inflationary impacts of the Iran war,” the department stated.
- Personal income tax revenue was $107 million (0.6 percent), above the forecast in June and $381 million (0.2 percent) above the forecast for the entire fiscal year. “The fiscal year overage was due largely to withholding, which was $1.255 billion above forecast due to a large overage in May, and higher estimated and final payments, which were $212 million and $317 million above forecast, respectively,” the report stated. “This was partially offset by lower other payments of $623 million and higher refunds of $760 million.”
- Corporation tax cash revenue was $896 million (6.8 percent) above the forecast in June and $920 million (1.9 percent) above the forecast for the entire fiscal year. “The fiscal year overage was due largely to PTET payments, which were $546 million above forecast, refunds which were $265 million lower than projected, and other payments, which were $115 million above forecast,” the report stated. “Higher PTET payments, which comprised most of the $920 million overage for the entire fiscal year, increase corporation tax revenue but are later offset by higher PTET credit use against the personal income tax, making the net revenue impact largely neutral over time.”
Taxes categorized as “other revenue” were $398 million (22.7 percent) below the forecast in June and $790 million (17.9 percent) below the forecast for the entire fiscal year. The department did not include an analysis of why the projections for these taxes – including excise taxes on gasoline, alcoholic beverages, cannabis, and insurance premiums – were so far off.