A sharp decline in corporate income tax collections accounts for much of the budget shortfall this year. The corporate income tax estimate for Fiscal Year 2009 is nearly 40 percent lower than the estimate for FY 2008, a drop of more than $178 million.
In December, the state Board of Equalization estimated there would be $7.06 billion available for lawmakers to spend during the 2008 legislative session for the fiscal year that begins July 1 and ends in June 2009. On Tuesday, the Equalization Board revised its certification for Fiscal Year 2009, finding lawmakers have $6.92 billion to spend this session - $146 million less than lawmakers expected to have for this year and $113 million less than they had available to spend last year.
"Corporate income tax is the largest contributor to the drop," said Director of State Finance Tony Hutchison at Tuesday's Equalization Board meeting. Corporate income tax collections are the most volatile facet of the state budget, sometimes accounting for huge gains and other times huge shortfalls, said Hutchison.
Back in June 2007, finance officials estimated the state would collect more than $450 million in corporate income taxes for FY 2008; now finance officials expect to collect less than $284 million. For FY 2009, finance officials estimate the state will collect less than $274 million in corporate income taxes, an 18.9- percent reduction from the previous year.
Individual income tax collections, on the other hand, are expected to hold steady at $2.15 billion. Finance officials were able to accurately anticipate the effect of tax cuts the Legislature passed during the last three years, which contributed to a slight drop in income tax collections. In FY 2007, the state collected $2.3 billion in personal income tax, compared to projected collections of $2.14 billion in FY 2008 and $2.15 billion in FY 2009.
When asked why corporate tax collections are so erratic, finance officials said the answer is complicated. State Treasurer Scott Meacham said corporate income tax collections are reliant upon national economic conditions. Companies that operate in multiple states allocate tax revenues to the states in which they operate, loosely based on the amount of business the company does in that state.
Many Oklahoma-based companies, particularly those in the energy or aerospace sectors, continue to perform well, said Meacham, despite the economic downturn that has adversely affected the financial performance of other companies that operate on a nationwide basis. …