State tax collections fall $100M short in October

NASHVILLE (AP) — A $100 million shortfall in last month’s tax collections may be an ominous sign for the state economy, state Finance Commissioner Dave Goetz said Friday.
Goetz said officials will be forced to consider whether Tennessee will be able to afford its current spending plan and how to adjust next year’s budget plans. The state has now missed tax projections by nearly $136 million for the budget year that began in July.
Goetz said most of the lower-than-expected tax collections in October came from an unusually high amount of corporate tax refunds.
The state had expected to collect $17 million in franchise and excise taxes during the month, but instead paid out $59 million. Tennessee’s sales tax collections also missed projections by more than $16 million.
Goetz said companies usually ask for tax credits when it turns out they’ve overpaid on their franchise or excise taxes. But this year, they’ve asked for cash refunds.
“What that tells you is that they don’t anticipate having substantial earnings in the current tax year and therefore they’re seeking a return of the money rather than carrying it forward,” Goetz said.
The state levies a 6.5 percent excise tax on income and a 0.25 percent franchise tax on businesses’ total property value.
Tennessee has collected $2.58 billion of the about $13.8 billion state portion of the overall $27.9 billion spending plan.
If sales tax and corporate tax numbers don’t rebound, the state will consider drawing down money from the rainy day reserve fund that is slated to stand at $750 million by the end of June, Goetz said.
Tennessee has so far been able to avoid some of the serious financial troubles faced by states more dependent on the slumping housing market, Goetz said.
Florida economists this week forecast another tax revenue shortfall of nearly $1.1 billion a little more than a month after lawmakers cut the same amount out of the budget to avoid a shortfall.
Last week, California Gov. Arnold Schwarzenegger ordered state department heads to draft plans for a 10 percent across-the-board spending reduction.
Goetz said a key indicator for Tennessee will be the Christmas season, since most of the state’s revenues come from sales taxes. Tennessee has no state income tax.
“There’s always a reason to hope that this is just a sneeze and not a full fledged cold for the economy,” Goetz said.
Published in The Messenger on 11.19.07

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