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Despite the economic slowdown caused by the COVID-19 pandemic, it appears the state collected enough revenue, primarily from tax collections, to have ended the last fiscal year on June 30 with a surplus.
According to a report recently released by the staff of the Legislative Budget Committee, the state ended the fiscal year with “an estimated excess of $55.9 million,” though, that number could be adjusted in the coming two-month closeout period. But the surplus means that Gov. Tate Reeves and/or the Legislature will not be forced to dip into the state’s reserves funds to ensure a balanced budget for the just-completed fiscal year.
The state has a healthy Working Cash Stabilization Fund or rainy day fund of about $680 million.
After a dramatic drop in tax collections for April, it appeared likely that the rainy day fund would be needed to balance the budget. But in the final two months of the fiscal year, collections rebounded despite the pandemic, according to the report released by the Legislative Budget Committee staff.
Total revenue collections for the fiscal year were $5.82 billion while total appropriations were $5.76 billon.
Still, for only the fifth time since 1970, the state collected less revenue during the past fiscal year than it did in the preceding fiscal year. The state collected $151 million or 2.5 percent less during the recently completed fiscal year.
Surprisingly, the state’s largest source of revenue, the 7 percent sales tax on most retail items, was up $18.1 million or .85 percent. State Economist Darrin Webb said the state’s sales tax collections might have been buoyed by the fact that Mississippi imposes its full sales tax on groceries and collects the nation’s largest state-imposed sales tax on food items. While some retailers have struggled during the pandemic, it does not appear that grocery sales have declined and might have increased.
Many point out the tax on food is a regressive tax that places a larger burden on the poor. But Webb said during the coronavirus pandemic the tax has been a boost for the state’s revenue collections.
“What the sales tax does, it stabilizes your revenue source,” Webb said recently. “And again, I am just a cold-hearted economist. I just look at the data and I look at forecasting. If you eliminate the food tax, that increases the amount of instability in your revenue source.”
Webb surmised during the pandemic the grocery tax has particularly helped smaller towns because people who normally might travel to a larger municipality to purchase groceries were more likely to do so locally.
“It has been the lifeblood for many small local communities…I think it has helped small communities tremendously and has helped the overall revenue stream of the state as well,” Webb said.
The state’s second largest source of revenue, the personal income tax, was down $78.5 million or 4.1 percent. But that number might be misleading because the state Department of Revenue extended the period to file taxes and pay tax liability from April 15 in the past fiscal year to July 15 in the current fiscal year. That could result in revenue collections for July being much higher than normal.
The 7 percent use tax, which is imposed internet sales, was up 4.1 percent or $13.5 million and the tax on liquor was up $7.3 million or 9 percent. Most other sources of revenue were down for the year.