Despite lagging corporate tax revenue collections and a slow September, the state collected more revenue than expected through the first quarter of the current fiscal year.
Tax revenues feed the state’s general fund, which funds basic public services like K-12, community college and higher education, various public health programs like Medicaid and mental health, and public safety departments.
Lawmakers budget each year based on projections. If revenue projections are not met, state leaders often have to cut agencies’ budgets mid-year or draw from reserve funds.
But through the first three months of this fiscal year, revenues have exceeded projections – a first in the past three fiscal years.
Total tax collections are $20.2 million above the estimate through the first quarter, which is $30.7 million, or 3 percent, higher than this time last year.
Individual income tax collections came in 6 percent higher than expected through the first quarter of the year. However, sales tax missed projections by 1 percent, and the corporate taxes, which include corporate income and corporate franchise taxes, missed projections by 14 percent.
Experts, including major credit ratings agencies, have expressed concern about the future of the state’s revenue collections as they pertain to corporate tax collections. Lawmakers in 2016 passed the largest single tax cut in the state’s history – most of which benefits corporations through the complete elimination of the corporate franchise tax, which is a state tax on capital companies have in Mississippi.
The franchise tax will be phased out gradually over 10 years, but the revenue impact of the cut will first be felt in the current fiscal year. When the corporate income and corporate franchise phase-outs begin starting Jan. 1, Mississippi stands to lose $46.5 million in fiscal year 2019. By fiscal year 2022, the tax cuts are projected to reduce state revenue by $70.8 million each fiscal year.
In September – four months before the franchise tax cut officially goes into effect – corporate tax collections came in $18.1 million, or 21 percent, lower than projected. Total corporate tax collections for the fiscal year are $27.4 million, or 22 percent, lower than they were last fiscal year.
Still, total tax collections beat first quarter projections.