Something’s Up — Starting With June Corporate Tax Collections
In at least one bit of budgetary good news, the Franchise Tax Board reports receiving nearly $4.4 billion in corporate taxes — roughly $1.2 billion more than the almost $3.2 billion budget writers predicted.
According to the state Department of Finance, $660 million of that $1.2 billion increase was sent to banks in May and transfered to the state this month for a net June increase of $540 million.
Nor are the increased tax collections due to improvement in the state’s economy. The Employment Development Department reported June 19 the state’s unemployment rate rose to 11.5 percent in May. The nation’s unemployment rate climbed to 9.4 percent during the same period.
The chief reason for the higher-than-expected revenues is a budget-related bill approved by the Legislature in September 2008 accelerating the estimated quarterly tax payments California companies make.
Under the bill, SB 28 1X, businesses no longer make four quarterly payments of 25 percent but instead make payments of 30 percent of their estimated liability in April and June and payments of 20 percent in September and December.
The analysis of the measure used by lawmakers says the change will bring in an additional $1.3 billion during the current fiscal year, falling to $240 million in the fiscal year beginning July 1.
A June 15 article on the California Chamber of Commerce’s website says the change will capture $2.3 billion form businesses over two years.
That increase was already factored into the Department of Finance’s estimates for June. The uptick in collections comes from another provision of the same bill which imposes a 20 percent penalty for businesses that understate their tax liability by $1 million or more.
The penalty was made retroactive to the the 2003 tax year. Fear of the potential penalty is causing businesses to boost quarterly payments.
While the additional $540 million, which might increase slightly over the next week, is a fraction of the estimated $24 billion hole in the budget for the fiscal year beginning July 1, the unanticipated cash could help smooth negotiations between lawmakers and Gov. Arnold Schwarzenegger over a final budget solution.
June is one of the major revenue months for corporate taxes, the heftiest payments concentrated around the first day of the month and the 15th.
On June 1, $660 million was logged. Those were the payments banked in May being transfered to the Franchise Tax Board. The following day, $1.9 billion came in. Another $1.2 billion was recorded on June 16.
The state’s bank and corporation tax rate is 8.8 percent.
Filed under: Budget and Economy
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