September tax revenues provide some optimism


State House News Service, Boston

The state’s September tax collection report showed signs of life within the Massachusetts economy, leading Patrick administration officials to express optimism that the state is shaking the cobwebs of the recession and climbing out from the cellar of the historic downturn.

Tax collections in September, one of the heaviest months of the year for receipts, surged 14.2 percent, or $250 million, over last September and beat budget benchmarks by $197 million, according to the Department of Revenue. Taxpayers poured just over $2 billion into the state’s coffers last month.

It marked the first September revenue report in three years that has shown any growth over the previous year. During that revenue implosion, the Legislature and Gov. Deval Patrick have tried to balance budgets by blending spending cuts, tax increases and heavy usage of the state rainy day fund and federal stimulus law funds.

Tax collections for the first quarter of fiscal 2011 are up 10.2 percent and $205 million over benchmarks, welcome news for state budget writers who have spent the past three years spending onetime federal stimulus law funds and chasing budget problems tied to tax revenues falling well shy of benchmarks.

“From a budget perspective it’s very heartening because we’ve been relying on economic stimulus. That money is intended to be a bridge to economic recovery and what these positive numbers show is we are working our way out,” Secretary of Administration and Finance Jay Gonzalez said.

Revenue Commissioner Navjeet Bal, referencing growing sales tax and income tax withholdings, said the September report gave reason for cautious optimism about the state’s economy.

“The fact that both of those have not spectacular, but good solid growth is a reflection, I think, of a recovering economy,” Bal told the News Service.

Gonzalez said the positive income tax growth “means people are hiring and there are more people on payrolls than we expected.”

During September, withholding collections were up $38 million, or 5.7 percent over last year, beating projections by $11 million. September also marked the first month that sales tax revenue could be compared year-to-year after the rate increase last year from 5 percent to 6.25 percent.

September sales tax collections totaled $400 million and were up $17 million over last year, a 4.6 percent uptick and $20 million over benchmark. Most of the growth came in business-to-business sales, while retail sales tax collections declined by 4.7 percent.

“This is further proof that Massachusetts is on the mend and on the move. Revenue is up in every tax category because more people are working, economic activity is up, and confidence is growing,” Gov. Deval Patrick said in a statement. “None of this is by accident, but because we have invested in job creation and a better climate for growth – and it’s working.”

Asked about the September revenue picture, Republican gubernatorial candidate Charles Baker noted that 25 states have lower unemployment rates than Massachusetts, currently at 8.8 percent.

“Most people think we have miles to go to get this economy back to work and I agree with them,” Baker said.

Gonzalez countered that Massachusetts continues to hover well below the 9.6 percent national unemployment rate.

“While we’re not where we want to be yet, we are moving in that direction faster and stronger than other states,” Gonzalez said.

After changes to the state’s tax code, this year is the first year that corporations are filing combined reporting returns with the state.

To help make the transition smooth, the DOR granted a filing extension for some corporations until Oct. 15, which contributed to the higher-than-expected corporate tax payments.

“We haven’t seen refunds they might be filing for,” BAL said.

The Department of Revenue said as much as $89 million in lower than expected refunds could account for the 52.8 percent increase in corporate and business tax collections last month.

Bal said some of the $152 million windfall in above-benchmark corporate tax revenue could reverse in October.

Bal also indicated that it was too early to estimate the impact of the August sales tax holiday weekend, but said her department would continue to monitor sales tax revenue in coming months to determine the extent to which consumers made purchases in August rather than holding off until later in the year.

Bal said she previously estimated $20 million in lost revenue from that weekend, based on experience from previous years. The DOR is required to file a report in the impact of the sales tax holiday by Dec. 31.

Gonzalez said next year’s budget will continue to pose a challenge as the state must find a way to offset roughly $2 billion in one-time revenue used to balance the fiscal 2011 budget, including $1.5 billion in federal stimulus money that won’t be there next year.

He said if the economy continues to improve it could reduce the burden on safety-net programs like MassHealth and homeless shelters that have had to absorb added caseloads traced back to the recession.

“Certainly next year is going to be a challenge, but it’s too early to say what that gap will be,” Gonzalez said.