Under the Dome

North Carolina personal income tax collections lag

North Carolina tax collections remained on target through the third quarter of the fiscal year, but the latest figures show revenue from personal income tax slowing significantly.

A report from the legislature’s fiscal research division shows General Fund tax collections $12.1 million above a revenue target of $14.5 billion. Sales taxes, running $101.9 million ahead of projections, are the primary reason for the surplus.

The report, though, shows a recession-like drop in personal income tax withholdings since the start of the year, and personal income tax collections now lag forecasts by $221.3 million.

The drop in personal income tax withholdings is the result of weaker-than-expected wage and salary growth and because the 2013 tax overhaul caused more changes to withholding schedules than anticipated, the report states.

The tax overhaul moved income tax rates to a flat 5.8 percent, and taxpayers made adjustments to their withholdings starting in January. The report says personal income tax withholdings will continue to lag behind original estimates through the 2014 calendar year, but should realign with projections when taxpayers file in 2015.

Rep. Nelson Dollar, a Cary Republican and the House’s chief budget writer, said the strong sales tax figures and lower unemployment numbers still suggest that the economy is improving.

He added that there is no reason to believe lawmakers won’t be able to manage with the revenue that is being collected and that putting more money in the hands of families is a good thing.

“We are certainly trying to do our part to get conditions to where (economic) growth is occurring in the state,” Dollar said.

The revenue report concluded that the 2013 tax changes will make it more difficult to gauge whether those changes or changing economic conditions are most responsible for any future swings in personal and corporate income tax collections.

As always, April will prove to be the state’s most important month for tax collections. The report noted that last year’s collections during April were 67 percent higher than any other month during the fiscal year.

Despite the drop in income tax withholdings, legislative economists say current economic projections suggest that overall tax collections should track close to estimates the remainder of this fiscal year and next.

Besides sales tax collections, the quarterly figures show other categories of revenue also ahead of projections for the first nine months of the fiscal year. Corporate income tax collections were $88.9 million ahead of projections, and franchise taxes were $18.8 million above estimates.

Scott Mooneyham writes for the NCInsider.com, a government news service owned by The News & Observer.

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