The state is reporting a surplus of more than $55 million in tax revenue this year. The increase in tax receipts is driven by boosts in state income and corporate tax dollars, according to the Joint Fiscal Office.
While much of the surplus will likely be harnessed in the fiscal year 2019 budget, the increase in revenue isn’t expected to last.
JFO believes the revenue growth in fiscal year 2018 has been spurred by the sale of businesses, anticipated federal tax reforms and a 2017 stock market rally.
Personal income tax revenue is up by more than $30 million.
Stephen Klein, JFO’s chief fiscal officer, told the House Ways and Means Committee Wednesday that $20 million of the expanded personal income revenue likely came from “wealthy one-off events,” like the sales of businesses.
“It’s sort of unusual, big transactions,” Klein said in an interview. “If somebody is going to change their income for multiple years, you’ll start seeing higher estimated payments.”
The remaining $10 million in the personal income revenue came, in part, from a boost in capital gains. Many tax filers may not have been inclined to take gains in 2016, in anticipation of tax reform in 2017.
“In 2017 there was tax reform, and not only was there tax reform, there was an incredible year in the stock market,” Klein told the committee. “Between those two you have a lot of capital gains coming into that line.”
Tax shifting as a result of federal tax reform could have also contributed to this $10 million boost.
Corporate tax income is up by more than $18 million. Between $8 million and $9 million represents potential corporate refunds that have yet to be processed.
The other portion likely comes from businesses that are repatriating funds from abroad, that is bringing money held overseas back to the United States and paying a tax on that transfer. The federal tax law, passed in December, offers a lower tax rate for companies that move money back.
JFO estimates that between $10 million and $11 million in the increased corporate tax revenue is from repatriation.
“Any corporation that is multi-state that does repatriate money and has a Vermont presence is likely to have a Vermont liability,” Klein said.
Both the Senate and the governor’s office have laid claim to the surplus. Klein said the Senate’s budget bill includes $24 million of spending that is contingent on the increase in tax revenue.
Under the proposal, $7 million would cover a Medicaid shortfall, more than $8 million would cover a fiscal year 2018 shortfall in the education fund reserves and another $8 million would pay for corporate tax refunds.
On Tuesday, Gov. Phil Scott unveiled a plan to plug a $58 million hole in the education fund with one-time money, using $20 million from the surplus.
