BOSTON (SHNS) – Over the last six months of a pandemic that’s led to wholesale changes in consumer habits, business closures and job losses, Massachusetts state government has collected $372 million more in taxes from people and businesses than it did during the same six months of pre-pandemic 2019.
The Department of Revenue reported that December tax collections came in at $2.842 billion, up by $230 million or 8.8 percent from the December 2019 total. Halfway into fiscal 2021, the state has collected approximately $14.306 billion from people and businesses. That puts fiscal 2021 revenues $372 million or 2.7 percent ahead of what was collected during the six months of fiscal 2020 that were entirely unaffected by the COVID-19 pandemic.
The Baker administration does not expect the cushion that’s been accumulated to last, however. The administration expects that fiscal year 2021 tax collections will end up 3.9 percent below actual fiscal year 2020 collections and DOR this week outlined how it expects that shift to materialize.
If tax collections outperform the administration’s expectations, it could put the state in a significantly better position for the fiscal 2022 budget. By the end of next week, the administration and Joint Ways and Means committees must agree on a consensus revenue estimate for fiscal 2022, which begins July 1, and Gov. Charlie Baker must propose a fiscal 2022 budget based on that projected revenue base by Jan. 27.
Massachusetts will also see billions in federal funds this fiscal year, including about $1.3 billion for education aid as part of the $900 billion pandemic relief and economic stimulus package Congress passed late last month. President-elect Joe Biden has signaled an interest in additional relief packages, including aid to state and local governments, which could further benefit Massachusetts.
December’s haul was fueled by increases in corporate and business taxes (up $201 million or 51.7 percent from December 2019), withholding (up $44 million or 3.4 percent), and regular sales tax (up $26 million or 6.3 percent). Meals tax (down $36 million or 36 percent) and “all other” tax receipts (down $6 million or 2.9 percent) declined for the month.
“The increase in withholding reflects increases in unemployment insurance benefits and the increase in corporate and business taxes is partly attributable to one-time business restructuring events and timing factors such as changes to corporate estimated payment installment patterns,” Revenue Commissioner Geoffrey Snyder said.
December is one of the more significant months for state tax collections, DOR said, and typically accounts for about 9.5 percent of annual tax revenue in part because many corporate taxpayers must make quarterly estimated payments.
Snyder said DOR will continue to “monitor revenue collections closely in the coming months.”
In conjunction with the announcement of December revenues, DOR also released its monthly expectations for the rest of fiscal 2021 based on the administration’s revenue estimate as upgraded in December. DOR has not been reporting how collections so far in fiscal 2021 have compared to its expectations and a DOR spokeswoman said the agency does not have benchmarks for the first six months of fiscal 2021.
The new monthly benchmarks offer a bit of a hint as to when DOR anticipates that the bottom will fall out between now and the end of June.
DOR is expecting to collect $2.738 billion in January, which would be $218 million less than the agency collected in January 2020. The expectation of $1.486 billion in February would be $29 million less than was collected in February 2020 and the $2.266 billion that DOR expects to receive in March would be $393 million less than actual March 2020 collections.
If those benchmarks are met, it would mean that Massachusetts would collect $640 million less over the next three months than it did during the same period of time in 2020 and the $372 million revenue cushion budget managers are currently sitting on would evaporate. The state would instead be looking at a $268 million drop from 2020 collections.
Over the final three months of fiscal 2021, DOR is expecting to collect $951 million less than it did during the same three months of fiscal 2020. Those estimates put Massachusetts on track for a drop of $1.219 billion from actual fiscal 2020 tax collections, which is roughly in keeping with the framework of the $45.9 billion fiscal year 2021 budget that Baker signed last month.
In recent years, specifically fiscal years 2016 and 2017, Massachusetts saw tax collections crater in the second half of the year. Stock market volatility cut into investment profits resulting in lower than expected capital gains tax collections over the second half of fiscal 2016. Then, during fiscal 2017, budgeted fund tax revenues increased by just $211 million, or 0.9 percent, from fiscal 2016, dragged down by declines in capital gains and corporate tax revenues.
Even as the COVID-19 pandemic and social unrest unfolded around the country through 2020 and into 2021, the stock market has generally been resilient. On Wednesday, the Nasdaq Composite rose above 13,000 for the first time, and the Dow Jones Industrial Average surpassed 31,000 and closed at an all-time high.
For fiscal year 2022, the administration’s forecast predicts that tax collections will fall within a range of $27.83 billion to $30.61 billion, or between a 1 percent decrease and an 8.8 percent increase.