Reduced Tax Refunds Aid Cash Position

Idaho taxpayers have filed fewer income tax returns for refunds and the amounts have been smaller than state economists predicted, pushing Idaho’s cash position back into a surplus for March.

And while the Batt administration’s chief economist was cautious about the $6.4 million cash surplus on March 31, Michael Ferguson said the strength of the economy indicates the state is back on track for reaching its revenue target by the end of June.

“There’s always uncertainty,” Ferguson said. “But based on the economy so far, it looks pretty good.”

Even so, achieving the revenue target of just under $1.4 billion still amounts to an increase of under 2 percent from the 1996 budget year and is one of the chief reasons state lawmakers scrimped in putting together the spending plan for the new budget year that begins July 1.

The Division of Financial Management said demand for personal income tax refunds last month was over $12 million lower than expected. At the same time direct tax payments were slightly ahead of projections while paycheck withholding, a major indicator of the economy’s underlying strength, remained below the monthly benchmark.

But even with sales and corporate tax collections continuing to come in under expectations, that was still enough to push total revenue through the first nine months of the spending year back over the projection after it had slipped nearly $8 million below in January.

Ferguson conceded that the large gap between actual refunds and expected refunds could be worrisome. The lower-thananticipated paycheck withholding total suggests, however, that more wage earners may have ended 1996 owing taxes rather than deserving refunds as they have in the past and are waiting until today to give up the extra cash.

He said that could be the result of the Tax Commission revising the table that determines how much is withheld for taxes from a paycheck depending on how many exemptions an employee claims.

Through the first three-quarters of the fiscal year, personal income tax collections, which account for nearly half of all general tax receipts, are over $19 million higher than expected, primarily due to low refund claims.

Sales tax, on the other hand, fell another $2.4 million below the monthly benchmark in March, leaving a $7.5 million gap in the tax category that provides more than a third of all general revenue.

Analysts blamed those flagging collections on a sluggish construction sector that could weaken even more if the Federal Reserve builds on the quarter-percentage point interest rate increase of several weeks ago.

Corporate tax payments, which provide less than 10 percent of total revenue but have been most volatile in the past two years and the reason for this year’s budget crunch, came in another $4.5 million lower than predicted.

That brought collections to more than $8 million less than projected, but Ferguson read little into the latest fluctuation and predicted receipts would recover in the next three months.