State has negative revenue from corporate income tax

By Aaron Gould Sheinin

The Atlanta Journal-Constitution

In a sea of negative economic numbers, one stood out in the state revenue report Gov. Sonny Perdue issued Monday afternoon: In the month of October, Georgia actually had negative revenue from corporate income taxes.

That meant that over 31 days last month, the state paid out more in corporate income tax refunds than it took in in taxes.

Revenue Department Commissioner Bart Graham said the drop was a result of several factors. October 15 is a common filing date for many corporations, including limited liability corporations and partnerships. Many receive refunds in normal times, but in the bad economy, many saw greatly increased refunds because they claimed net operating losses.

"That will typically drive something like that," Graham said.

The average corporate refund last month was $13,800, up from $9,925 in October 2008. Not only did the average refund increase, however, but the department issued 700 more corporate refunds than a year ago.

Despite the fact that overall state revenue fell 18 percent in October compared to the same month a year ago, there is reason to believe that the string of negative revenue reports will end soon.

That's because the coming months mark the anniversary of the start of Georgia's massive economic slide, which has seen nearly $3 billion sheared from the state budget in the past two years. Through the first four months of the fiscal year that began July 1, state tax collections from individual and corporate income taxes and sales taxes is off 15 percent, or $831 million.

So far in the 11 consecutive months of declining state revenue, each month has been compared to a relatively positive revenue picture from a year ago. That will change come December.

December 2008 marked the beginning of the 11 straights months of economic contraction. In that month, revenue was off 9 percent from December 2007. That means December 2009's revenue picture will compare bad month to bad month. That's not a huge relief, and is not the same thing as economic recovery, but it is a start.

Alan Essig, executive director of the private Georgia Budget and Policy Institute, said he would expect November's revenue to continue the decline and then be flat or rise in December.

"Everyone agrees that number will improve," he said. "The question and the gamble is how much will it improve and will it improve enough to meet the governor's revenue adjustment?"

Perdue has already ordered $900 million in cuts to state agencies this fiscal year and most analysts believe at least another $300 million in cuts will be necessary.

But there is a bigger problem looming, Essig said. This year's state budget includes nearly $2 billion in money from the federal stimulus plan and state reserves. That money won't be available for 2011 and 2012, meaning if revenues don't go on a historic tear, more cuts will come.

Unless, Essig said, state leaders find other sources of revenue. Many other states, including regional neighbors in Virginia and North Carolina, have found ways to increase revenue either through temporary or permanent tax increases or elimination of special-interest tax breaks.

Those states, Essig said, will avoid the Draconian cuts Georgia faces "and will be in a better position to prosper in recovery than we will."

North Carolina, he said, has enacted a temporary tax increase on higher income taxpayers. Other states have increased tobacco taxes and Florida increased motor vehicle registration fees.

"There is a menu of options available," Essig said. "We need a real discussion of those choices and what approach makes sense."