July Tax Collections Point to Sluggish Improvement in State Revenue Situation

August 3, 2010

Tax collections for July 2010, the first month of the Commonwealth’s new fiscal year, point to a sluggishly improving revenue situation for the state’s General Fund. Compared to collections in July 2009, the $1.69 billion collected in July 2010 represents an increase of $42 million, or 2.6%.

Tax Collections Up Over July 2009

Tax collections were up $22 million, or 1.4%, last month over July 2009, due in part to higher sales tax collections and higher cigarette tax rates being in effect this year (the cigarette tax rate was changed in November 2009). Sales tax collections increased by $21 million, or 2.9%, while the combined collections of cigarette, malt beverage, and liquor taxes increased by $24 million, or 28.4%, from July 2009.

Realty transfer taxes also increased in July 2010 by $6 million, or 18.9% - an increase that is likely is due in part to federal incentives to buy houses which recently expired.

Table game tax revenue, collected for the first time in July 2010, added $1.6 million to General Fund collections.

Non-tax revenue increased by $20 million, or 159.5%. This difference may be due to one-time transfers from other funds in July 2010.

Income, Corporate Taxes Still Down

Not all revenue categories increased in July 2010.  Collections of the state’s largest single revenue source, personal income tax, were down slightly in July 2010, falling $2 million, or 0.3%, short of July 2009 collections. Corporate taxes were down more sharply - $28 million, or 32.3%, from collections a year ago. Until the collection details are released mid-month, it is not possible to determine which corporate taxes declined in July 2010.

Compared to collections in July 2008, however, revenues last month were down $53 million, or 3%. Tax collections from every major tax (with the exception of cigarette, liquor, and beer taxes due to the cigarette rate increase) fell short of July 2008 levels. This indicates that General Fund collections are still weak compared to those before the recession.

Transportation Funding Lags July 2009

Motor License Fund revenues in July 2010 are $76 million, or 23.6%, below those in July 2009.  The Pennsylvania Turnpike Commission had made $125 million in Act 44 contributions to the Motor License Fund in July 2009, but no such transfer was made in July 2010. With the Turnpike Commission's proposal to toll I-80 denied by the federal government, Act 44 transfers to the Motor License Fund will be significantly reduced in 2010-11.