August was another tough month for Kansas Tax Collections. Kansas missed total tax collection estimates for the month by $31 million, or 6.9% below estimates. Kansas fiscal year began July 1, 2015. This brings the YTD shortfall to $36 million, which is 4.1% below estimates. August had a couple of anomalies that made for a bigger loss. Economic development program refunds totaled around $21 million. This resulted in C-Corp tax collections being a negative $7 million and Individual income tax collections missing estimates by $5 million. Sales tax collection estimates are off by $6 million YTD. I believe that the estimated sales tax revenue projection is too high and until it is adjusted downward, the actual sales tax revenue will continue to be below estimates by $3 million per month and $36 million for the year. These losses through August brings the State's ending balance in the checkbook down to around $50 million. An ending balance of approximately $200 million is a goal to cash flow operations and have a cushion for economic downturns and unforeseen expenses. An even better approach would be to have a constitutionally mandated rainy day fund with a formula to build up a balance to $400 million.
Below are graphs showing Kansas tax collections for the single month of August and YTD two months ending August 31, 2015. The Kansas fiscal year runs from July 1, 2015 to June 30, 2016.
TAX COLLECTION - YEAR TO DATE
I think all the income tax and sales tax rate changes over the last couple of years have made it very difficult for the tax estimators to model projections. The state uses sophisticated economic models to estimate its taxes, and also consults with top economists from KU, K-State, and Wichita State on the estimates. But these economic models are not perfect, and are affected in many ways by what goes on in the state, national, and international economies. There are timing issues as well. In addition, the economy grew very slow from July-14 to June-15. The timing issue on personal income taxes took two years to stabilize. Taxpayers with pass through tax entities (LLCs) continued to make quarterly estimates after the tax policy changes of 2013. Once they and the accountants realized that the 100% untaxed pass through income was not an error, quarterly estimated payments declined sharply. Then refunds occurred to drain any rollover balances left at the state. These amounts normally just rolled over to give the taxpayer a self-induced cushion to avoid a tax surprise. Once it was affirmed that the 100% pass through was in fact going to go forward untaxed, the pass through tax payers requested refunds from the state in the out years. Refunds in 2014 and 15 were high.
There are only two areas of tax collections that drive the revenue cycle for the State. Individual income taxes and Sales taxes. These two make up approximately 90% of total tax collections. Now that the State has increased cigarette taxes it could be number three. Severance tax is really low but Kansas exempts most Severance tax. Even in best years severance tax barely produced 3% of total tax revenues. Kansas lacks a robust oil and gas energy and tax policy. As a result Kansas did not participate in the oil and gas renaissance the rest of the oil producing states experienced.
Retail sales tax collections in September will be an important milestone. We will have 3 months trend into the new fiscal year with the higher sales tax rate.
To date through August, retail sales tax collections are $7 million down from projections.
$208 million is the estimate for September 2015. This is 14.9% above Sept-14.
To make YTD projections for the 3 months ending Sept 30, 2015, retail sales tax collections for the month of Sept-15 needs to come in at $215 million, or 18.8% above Sept-14.
The two (2) month trend indicates September-15 coming in at $205 million, or 13.3% above Sept-14. This will put us down about $9 million YTD through the 3 months ending 9-30-2015. If the trend continues retail sales tax collections could be down $36 million for the fiscal year ending June 30, 2016.
I know a two (2) month trend is unreliable, however that is all the data I have to work with right now. All the sales tax changes make it almost impossible to project in the short term.
Capitol Office 300 S. W. 10th Street, Room 541-E Topeka, KS 66612 785.296.7394 Jim.Denning@Senate.KS.Gov
Overland Park 8416 W. 115th Street Overland Park, KS 66210 913.345.9416 JDenning@Discovervision.com