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The City Café

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The Tax Commission released its first quarter report last week for state revenues which indicated that revenue growth subsided a bit from the last few years.  Evidence points to the federal sequestration and the landslide at Rio Tinto as the two key factors that have halved growth in the state’s general and education funds.

State sales taxes rose only 1.5% on their summary report, but in reality sales taxes for the state’s 4.7% general sales taxes rose 3.2% if you include the more than $115 million in earmarks to Transportation and Water projects.  Earmarks rose 10%.   In its detailed report, the Local Option 1% sales tax rose 3.9% for the first quarter of FY2014.  Similarly for counties, the 1/4% County Option tax rose 3.9% in the first quarter.  This confirms our analysis that state sales taxes rose at least 3.2% in the first quarter.

Individual Income taxes also rose 3.2% in the first quarter.  This was exactly the increase as state sales taxes (including earmarks).  The 3.2% overall gain was made up of a lackluster 1.3% increase in withholding from payroll taxes and an continued, surprising 25% gain in final payments.  This puts into question the idea that FY2014 income taxes would be negative because of the falloff of one-time final payments due to large taxpayers pushing capital gains into 2012.  These first quarter payments probably reflect payments from extensions, though, at least partially related to the capital gains play.

Motor fuel taxes drop almost 12% in the first quarter.   At this time we are not sure if this is a real decline or some accounting problem.  Indicating this might be a real decline, special fuel taxes on diesel and propane were also off 12% in the first quarter.  If the decline is real, however, it should give pause to policy makers who want to “hitch their wagons” to the gas tax as a new source of revenue.   The flat to declining outlook for gasoline consumption is due to increasing miles per gallon performance by the state’s automobile fleet.  In addition, motor fuel taxes do not increase as the price of fuel increases.


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