RALEIGH — North Carolina tax collections are on track for the state to post its highest surplus since 2008.
“Extraordinary growth” in year-over-year final tax payments during April means the state ultimately may collect over $700 million above what budget-writers projected last summer to pay for the current year’s budget, General Assembly economist Barry Boardman told legislative leaders. Collections usually pegged to the April 15 tax deadline are historically considered the most unpredictable.
The potential over-collections, equal to roughly a 3% revenue increase, mark a state government revenue surplus for the fifth year in a row and highlight the continuation of stable, modest growth in the state economy. Other states also are reporting similar April results, Boardman said.
The extra cash gives Republican legislators more options in fashioning a final two-year budget this summer, whether through more spending, additional savings or further tax breaks. The budget proposal for the two years starting July 1 approved by the Republican-controlled House last week only envisioned $151 million in over-collections. Last year, there was a surplus of $440 million.
Rep. Chuck McGrady, a House budget committee chairman, doesn’t anticipate the larger surplus will result in more spending in the first year of the budget, since House and Senate Republicans previously agreed on a $23.9 billion cap. Unless they change their minds in final negotiations, Republicans could just park extra funds in savings.
“It could mean something in the second year, when we don’t have a cap,” said McGrady, a Henderson County Republican.
In an email, Boardman attributed the revenue growth to final individual income tax payments, particularly from taxes on transactions like capital gains and dividends. Those April payments alone were $395 million projections and 46% above what was collected last year. Taxes taken from wage and salary income — usually from paycheck withholdings — have remained very close to forecast totals, Boardman said.
Corporate income tax payments in April also were 42% higher than last year and $75 million above projections, his email said. The state income tax rate for corporations dropped from four percent in 2017 to three percent in 2018. North Carolina currently has the lowest corporate tax rate among the 44 states that impose a corporate income tax. The corporate tax rate will be further reduced to 2.5 percent in 2019.
Boardman and State Budget Director Charlie Perusse confirmed on Monday that more time is needed to examine what portion of the over-collections can be counted on year after year and how much is just a one-time blip. This will result in an updated revenue forecast next week, in time for the Senate — also a Republican majority — to use when the chamber passes a version of the budget by the end of the month.
The greater the percentage of over-collections that can be counted on in future years, the more of it that will be added to the baseline revenue forecast. Those “recurring” funds can be earmarked to fund permanent state programs and salaries. One-time funds more often than not are used for construction projects, employee bonuses or temporary programs.
The House and Senate ultimately will work out a final budget to present to Democratic Gov. Roy Cooper.
North State Journal staff contributed to this report.