April 18, 2008

Corporate Tax Revenues Crater

Yesterday the Department of Finance released its monthly finance bulletin regarding state General Fund revenues.  This is the last report prior to the May Revision, anticipated to be released on May 14.  The revenue report indicated that corporate tax revenues were approximately $900 million below the Governor’s budget estimate.  In December, when prepayment of corporate taxes were lower than anticipated, it was expected these would be paid early in 2008 prior to closeout of the corporate tax year.  As it turns out that expectation was in error.  California’s economic softening started earlier than the national economic downturn which is reflected in California’s corporate tax payments.

The good news is that personal income tax and sales tax revenues appear to be tracking with the budget estimates. 

The Legislative Analyst’s Office (LAO) February revenue estimates assumed this drop in corporate taxes.  The LAO revenue estimates probably will be closer to the May Revision revenue estimates than the Governor’s budget estimates.  We will know more in a month when the Governor releases his May Revision.

~Dave Walrath

dwalrath@m-w-h.com