Revenue Through Q1 Boosted by Online Sales and Federal Stimulus

October 28, 2020

Federal Stimulus Helps FY 2020 End Better than Expected

Earlier this month, the Tax Commission released the final TC-23 Revenue Summary for Fiscal Year 2020. The revenue decline to the Education Fund was less severe than previously projected in June, dropping 10.1% compared to the projected 11.6% decline. The General Fund ended the year with 7.4% positive growth. During November’s Executive Appropriations Committee, the Division of Finance will announce year-end figures for the both the Education Fund (which include adjustments such as putting money aside in the rainy-day fund) and General Fund (which include adjustments such as unspent appropriated funds). Although the preliminary outlook for revenues to both state funds appears optimistic, the better-than-anticipated outcomes are likely the result of income tax delays and significant federal stimulus actions, the future of which remains largely uncertain. As Fiscal Year 2021 unfolds, staff economists will have a better picture if the budget reductions from earlier this year will be sufficient to balance the budget.

Q1 of FY 2021 Provides Largely Uncertain Outlook

A cursory review of the first quarter revenue summary for Fiscal Year 2021 will indicate that revenues are on target for all state funds, with the General Fund posting a growth rate of 8.3%, and individual income taxes a whopping 83.5%. In reality, sales tax growth rates are skewed in an upward direction because the first quarter of Fiscal Year 2020 did not include online sales tax for marketplace facilitators (such as eBay); these collections went into effect in October of 2019, so the year-over comparison is skewed until second quarter figures come in. Further distortions result from federal stimulus actions, which have buoyed both sales and income taxes. To date, federal intervention has totaled nearly $2.6 billion, or roughly 1.4% of Utah’s Gross State Product (GSP). A final obscurity unique to FY 2021, is provided by the income tax timing delay. Because Income Tax collections were made in July (usually posted in April) there is an artificial spike to the Education Fund from revenues that should have been collected in FY 2020.

As with the first quarter of any fiscal year, revenue collections are typically volatile and because of this, caution should be exercised when interpreting these early-year revenue figures. It should also be noted that tax collections lag economic activity by up to four months depending on type, so Q1 revenues are indicative of sales that took place during the summer.

The reports referenced in this post are available at the links below:
Final Revenue Snapshot FY 2020
TC-23 Revenue Summary (Final, FY 2020)
First Quarter Revenue Snapshot FY 2021
TC-23 Revenue Summary (Q1, FY 2021)