Quarterly tax numbers support state’s budget crunch concerns
First quarter collections for the Modified Business and Real Estate Transfer taxes added to the state’s budget woes Thursday, lagging double-digit percentages behind projections used to build the state budget.
As predicted by Director of Administration Andrew Clinger, sales tax collections were down again in September, leaving the state nearly $20 million short for the quarter in that category alone.
He had warned quarterly collections for other major revenue sources also would be below projections and Thursday’s release proved him correct.
For the first quarter of fiscal 2008, the Modified Business Tax was 6.6 percent below the same period last year. But the $64.6 million collected translates to 11 percent – just shy of $8 million- below what the Economic Forum projected.
The Real Estate Transfer Tax was expected to fall short of projections because of the collapse of the real estate market. Actual collections of $26.7 million were $6.2 million – 19 percent – below projections used to build the budget.
The other large revenue source falling behind projections is the Insurance Premium Tax which was $5 million – 6.9 percent – below projections.
If those trends continue through the fiscal year, the state would be more than $30 million short in business tax revenues, about $25 million down in real estate revenues and $20 million in insurance premium revenues. Unless the economy begins to recover, revenues would be short by at least that much in the second year of the budget cycle as well.
Gov. Jim Gibbons asked agencies to prepare for 5 percent reductions in October. A week ago, he raised that to 8 percent. He did so based on sales tax shortfalls alone, cautioning agencies he might have to cut deeper if other revenues also fell short and the economy didn’t recover.
As of the end of the first quarter, sales and use tax collections are $19.7 million short of projections. Lagging sales tax collections also impact public schools, which get about the same percentage of sales tax revenues as the state. There, the state is required by statute to make up the loss – at this point, $11.8 million for just the first quarter.
If those trends don’t change for the next three quarters of the year, the state will be down nearly $130 million in sales and use tax revenues in the first year of the two-year budget cycle alone.
Clinger told lawmakers and local officials attending the governor’s forum on the budget crunch he has projected a $285 million sales tax shortfall for the two year budget cycle.
The final piece of the puzzle is gaming percentage fees, which account for more than a quarter of state general fund revenues. As of Sept. 30, gaming tax revenues were $15.4 million less than projected. That, however, may rebound with the opening of the Palazzo, a new mega-resort on the strip, in December and two more openings planned in 2008.
The numbers became available with the release of the September monthly and first quarter taxable sales summary issued by the Department of Taxation.
That summary shows overall statewide sales down 1.5 percent to just under $4.2 billion compared to the same month of 2006.
Year to date, taxable sales are down in 14 of Nevada’s 17 counties, including Carson City, Douglas and Churchill counties. They are up dramatically in Storey because of expanding business at the Tahoe-Reno Industrial Park east of Sparks.