Budget Blog

April Tax Collections Plummet from Tax Deadline Shifts and Fallout of COVID-19

By Brian Sigritz posted 7 days ago

  

As expected, April tax collections fell sharply with many states experiencing year-over-year declines of at least 50 percent, as highlighted in the below state-by-state press articles. The precipitous drops were brought on by a combination of states shifting their tax deadlines to July 15, and the economic impact of the coronavirus.

Tax Deadline Shifts
On March 21, the U.S. Treasury Department and Internal Revenue Service (IRS) announced that the federal income tax filing deadline would be extended from April 15, 2020, to July 15, 2020. Following this federal action, 40 states also chose to extend their state tax deadline to July 15, 2020, while seven states chose other deadlines, according to the American Institute of Certified Public Accountants (AICPA). The tax deadline shift led many taxpayers to postpone filing their tax returns, causing a sharp drop in personal income tax payments in April.

Personal Income Taxes
Within the personal income tax category, states saw the largest declines within the non-withholding component which includes estimated and final payments. States are hopeful that they will receive most of the delayed payments in July. However, some of the deferred taxes may not be collected in July as taxpayers’ financial outlooks worsen. Most states also noted a decline in the withholding category of personal income taxes (or the amount withheld from an employee’s paycheck and paid directly to the government) in April. The declines were perhaps not as much as many had expected with the unemployment rate reaching 14.7 percent in April. This may be partly explained due to many states taxing unemployment benefits.

Sales Taxes
Numerous states also reported a decline in sales tax collections in April resulting from less spending in several categories. For many states, the April sales tax collection figures represent sales activity in March, when most states did not begin to issue stay-at-home orders until mid-month. Sales tax collections for the month of May are expected to show a steeper decline as they will reflect a full month of April data highlighting the economic impact of COVID-19. Personal income taxes and sales taxes combined represent 75 percent of all state general fund revenue collections, as illustrated in NASBO’s recent blog post on State Budget Basics.

Summary
In many ways, it is expected that the worst is yet to come for tax revenues as states begin to feel the full economic effects of the COVID-19 pandemic. In the coming months, nearly all sources of state tax revenue will be impacted, including:

  • personal income taxes, due to increasing layoffs and stock market volatility,
  • sales taxes, as consumers spend less,
  • corporate income taxes, with the expected decline in corporate profits,
  • gaming revenue with less casino and other gaming activity, and
  • motor fuel taxes, due to limited driving.

The declines in state tax collections due to COVID-19 are expected to well exceed the 11.6 percent drop states experienced during the Great Recession, with some states anticipating declines of more than 20 percent. States are already facing sizeable budget gaps as they close out fiscal 2020 and begin fiscal 2021, resulting from both sharply declining revenues and increased spending demands related to the coronavirus and the economic downturn.

Resources
Below is a compilation of recent press articles detailing states’ April revenue collections; in addition, please access updated state revenue forecasts on our Coronavirus Resources webpage.