On Monday, the Josiah Bartlett Center reported on our website (which you should read religiously because you’re smart and you want to drop impressive knowledge on unsuspecting strangers at cocktail parties, whenever we can have those again) that preliminary state revenue figures suggest there won’t be automatic business tax hikes for the 2021 fiscal year.
The key word there is “suggest.” A business tax increase is still a possibility, if a remote one.
Last year’s state budget contained a provision that would trigger a Business Profits Tax increase of 2.6% and a Business Enterprise Tax increase of $12.5 percent if state General and Education Fund revenue fell at least 6% below projections.
State collections for June, the final month of the fiscal year, show that General and Education Fund revenues fell below plan for the year by 5.4%. But the June report is based on cash collections as of the end of June. The numbers are always adjusted later, and the totals are not final and official until the audited financial report is released in December.
We looked back at state revenue reports through 2007 (the last year for which reports are posted online) and found five years between 2007 and 2019 in which there was at least a $20 million difference between the June cash report and the final audited revenue figures.
The differences are as follows:
2008: $20.4 million
2010: $78.5 million
2012: $27.2 million
2016: $67 million
2019: $-25.1 million
Only in 2019 was the audited figure lower than the June cash figure, and most of that change (more than $16 million) was attributable to business tax refunds. But there was a drop of about $9 million not related to tax refunds.
If the final, audited General and Education Fund revenues for FY 2020 are lower than June’s reported revenues by $15.35 million, the tax increases would be triggered.
That would be an unusually large drop, but it’s not unprecedented. Businesses face the prospect of spending the next six months in tax-rate limbo, which can affect hiring and other spending plans.
If you’re uncertain whether your taxes are going to go up, you’re more likely to save cash and avoid hiring, especially since payroll makes up the largest share of the Business Enterprise Tax, which is scheduled to rise by 12.5% if the revenue trigger is met.
Legislators had the chance to remove this uncertainty and repeal the tax-hike trigger. But, hoping for a tax increase, they refused.
We’ll have a better idea of the situation in a few weeks, when the state releases June preliminary accrual report. That’s a follow-up report to the June cash report. It includes a fuller financial picture and tends to be much closer to the final, audited report released in December.
For now, business owners and managers should keep the celebrations on hold.