State revenue is running $17.5 billion ahead of projections for the first eight months of the 2021-22 fiscal year, the Department of Finance reported this morning in its monthly Finance Bulletin.
“Of note, $6.265 billion of the total additional revenue through eight months is due to higher-than-expected Pass-Through Entity (PTE) elective tax payments under the corporation tax, a 2021 state tax change designed to allow some taxpayers to reduce their allowable federal tax liability starting with their 2021 tax returns,” the bulletin stated. “Every dollar received from the PTE elective tax paid generates a dollar of personal income tax credit. While the amount of PTE elective tax payments can be tracked in monthly cash reports, the extent to which taxpayers will reduce their personal income tax payments to reflect the elective tax credits cannot be determined until more complete tax return data for 2021 are available. Therefore, it is reasonable to assume that a portion of this $6.3 billion may overstate the amount of overall revenue strength to date.”
For the state’s main sources of tax revenue, personal income tax revenue was $10 billion ahead of projections for the first eight months of the fiscal year, sales and use tax revenue was $1.299 billion above the forecast, and corporation tax revenue was $8.115 billion higher than projected. The insurance tax, tobacco tax, and “other revenue” categories were below projections, resulting in total revenue below the cumulative sum of the “big three” sources.
The bulletin also notes that California’s unemployment rate remained at 5.8 percent for this third consecutive month this year, while the national unemployment rate was 3.8 percent, and U.S. inflation reached 7.9 percent in February, the highest rate since January 1982.