December General Fund revenue decreased 5.7 percent from the previous year, mainly due to a significant drop in individual estimated payments received ahead of the Jan. 15th due date.
Sources most closely tied to economic activity—payroll withholding and sales tax collections—posted strong growth. On a fiscal year-to-date basis, total revenue collections rose 1.5 percent through December, trailing the revised annual forecast of 5.9 percent growth.
Although collections are lagging the annual estimate, growth is expected to be higher in the second half of the fiscal year due to effects of the federal Tax Cuts and Jobs Act. Because the timing of payments at this time of year can distort growth in several sources, December and January collections should be viewed together to accurately assess growth. This is especially true for nonwithholding receipts where fourth quarter estimated payments for the calendar year are normally split between December and January. As a result of the federal Tax Cuts and Jobs Act, last December’s individual estimated payments totaled $403.8 million as compared to this year’s $108 million.
“This report indicates that the underlying fundamentals of Virginia’s economy remain strong,” said Gov. Ralph Northam. “As we begin this General Assembly session in Richmond, we have the opportunity to ensure positive revenue growth for the rest of the year by keeping our focus on creating well-paid, 21st century jobs, and investing in core priorities that will continue to expand and diversify our economic base.”
Collections of payroll withholding taxes rose a strong 11.9 percent in December. Through the end of December, the partial federal government shutdown has had no effect on receipts because payments are received from agencies at the beginning of the month, prior to the start of the shutdown. Collections of sales and use taxes, reflecting November sales, were up 7.7 percent in December. November represents the beginning of the holiday shopping season and a clearer assessment of the season will be possible after receiving December sales tax payments due in January. Finally, collections of wills, suits, deeds, and contracts—mainly recordation tax collections—were $32.0 million in December, compared with $32.4 million in December of last year for a decline of 1.3 percent.
Year-to-date, withholding collections are 4.5 percent ahead of the same period last year and ahead of the revised annual estimate of 3.8 percent growth. Year to-date collections of nonwithholding were $828.2 million compared with $1,045.5 million in the same period last year, a 20.8 percent decline compared with the annual estimate of a 15.2 percent increase. A clearer assessment of growth will be possible at the end of January, when all quarterly payments have been received and December and January collections can be considered together. However, since some of the extremely large payments from individuals received last December were in fact a proxy for their May 1st final payment, it may be until May before a complete analysis can be done.
On a year-to-date basis, sales tax collections have risen 4.8 percent, ahead of the annual estimate of 3.7 percent growth. Corporate income tax collections for the first half of the fiscal year have risen 1.2 percent from the same period last year, but are behind the annual estimate of a 5.6 percent increase. On a fiscal year-to-date basis, total revenue collections rose 1.5 percent through December, behind the revised annual forecast of 5.9 percent growth.
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