Illinois Department of Revenue says sales tax receipts slowing

Possible $800 million below budget estimates for the year

[November 11, 2008]  SPRINGFIELD -- Tax receipts in Illinois, as in most states, are coming in more slowly than anticipated, as a result of rising unemployment, slowed consumer spending and reduced business activity.

In each of Illinois' major taxes -- individual income tax, corporate income tax and sales tax -- the Department of Revenue has seen receipts for the first four months of fiscal 2009 (July through October) come in below estimates. If this pattern were to continue for the next eight months, revenues would be nearly $800 million below estimates on which spending was based.

Thirty-two states -- including California, New York, Florida and Ohio -- are experiencing midyear shortfalls, according to Economy.com. For example, New York says they are facing a $1.5 billion deficit, and California last week announced that that they are seeing $11.2 billion less in revenues than the budget they announced just six weeks ago.

Individual income tax

Individual income tax was originally projected to grow 1.1 percent. When a law change that accelerated payment of withholding tax is considered, receipts are down 4 percent compared with budget projections. If this pattern continues for the remaining eight months of the year, individual income tax receipts would be about $330 million below the estimates upon which the fiscal 2009 budget was based.

Rising unemployment and stagnant wage growth are contributing to the reduction in income tax receipts Illinois and in other states.

Corporate income tax

Corporate income tax was originally projected to grow 4.1 percent. When changes related to timing are accounted for, receipts will be down 14 percent compared with budget projections. If this pattern continues for the remaining eight months of the year, corporate income tax receipts will be about $270 million below the estimates upon which the fiscal 2009 budget was based.

The international financial crisis, as evidenced by the tumbling stock market, contributes to declining corporate profits and tax receipts.

Sales tax

Originally projected to grow at 1.6 percent, receipts will be down 3 percent compared with budget projections. If this pattern continues for the remaining eight months of the year, sales tax receipts will be about $215 million below the estimates upon which the fiscal 2009 budget was based.

The slowing growth of income that leaves less money for discretionary spending contributes to declining automobile and home sales -- all reducing sales tax receipts.

The Illinois Department of Revenue also noted that revenue from gaming taxes (existing casinos only) is likely to be $100 million less than what was budgeted. State investment income is also projected to decline.

And if the Illinois economy worsens, as many predict it will, the shortfall between fiscal 2009 receipts and budgeted revenues may exceed $1 billion.

[Text from Illinois Department of Revenue file received from the Illinois Office of Communication and Information]