January tax collections obliterated the Baker administration's expectations, coming in almost a half-billion dollars above the Department of Revenue's already-upgraded monthly benchmark and helping to brighten the state's financial picture heading into a fresh round of budget deliberations.
DOR collected $3.347 billion from taxpayers last month, which is $392 million or 13.3% greater than what the state collected in January 2020 and $429 million or 14.7% above DOR's benchmark for the month, which had already been boosted by $180 million from an earlier estimate.
"January revenue included increases in withholding, income estimated payments, regular sales tax, and 'all other tax,' as well as a decrease in meals tax," Revenue Commissioner Geoffrey Snyder said. "The increase in withholding is likely related to unemployment insurance benefits and bonus related payments, and income estimated payments were strong likely because of 2020 investment-related income gains. The increase in 'all other tax' is primarily attributable to estate taxes, a category that tends to fluctuate."
January is the fourth-largest revenue month of the year for Massachusetts, and tax collectors usually bring in a shade more than 10% of their annual haul during the month.
Now seven months through fiscal year 2021, Massachusetts state government has collected $764 million more in taxes from people and businesses than it did during the same seven pre-pandemic months of fiscal year 2020. The last month Massachusetts saw a year-over-year decline in tax collections was September.
"To this point, tax collections have exceeded every expectation and projection, and we really need to figure out why that is," Evan Horowitz, director of the Center for State Policy Analysis at Tufts University, said. "Perhaps it's a testament to the robustness of our tax system but it could also be an indictment of the models and partners the state relies on for planning purposes."
Gov. Charlie Baker said last week that the state's tax revenue picture remains "somewhat unpredictable" and DOR does not expect the $764 million revenue cushion it has accumulated to last.
If monthly collections come in at current benchmark levels for the rest of the fiscal year, Massachusetts would be looking at a drop of $90 million from actual fiscal 2020 tax collections.
Less than a month ago, before the administration upped its overall revenue estimate for fiscal year 2021 and before January collections more than doubled the state's cushion over fiscal 2020 collections, hitting the DOR benchmarks for the rest of the year would have put the state on track for a $268 million drop from 2020 collections.
DOR expects that it will collect $1.502 billion in taxes in February, which would be a drop of $13 million from February 2020. In March, the agency is projecting tax collections to be $2.413 billion, a decrease of $246 million from March 2020. In April, DOR expects to collect $3.48 billion, about $1.5 billion more than in April 2020, when the tax filing deadline was extended. May 2021 is expected to bring in $1.893 billion or $155 million more than May 2020.
If collections come in at exactly the DOR benchmarks from February through May, the state would enter June having collected about $2.159 billion more than it had collected to that point of fiscal year 2020. But DOR expects to collect about $2.249 billion less this June than it did last June, meaning the month (and therefore the fiscal year) would end with DOR having taken in $90 million less than it did through all of fiscal year 2020.