State tax collections were up slightly in January, but the revenue report released Friday also provided a sign of what may lie ahead for Georgia.
Collections were up 1.1%, or $33 million, over January 2021, but net income tax collections were off 4% and refunds increased. Sales tax collections were up 9.9% over the same period last year.
Sales and income taxes provide the majority of state funding to help pay for schools and public health care, prisons, highway policing and parks.
State finances have been on a roll since the COVID-19 pandemic shutdown ended in the spring of 2020. Consecutive surpluses helped the state boost state employee and teacher salaries and expand services for things such as mental health and substance abuse programs.
The state rebated $1 billion to Georgians last year, and with a record $6.6 billion surplus in fiscal 2022, Gov. Brian Kemp is pushing for about $2 billion in rebates this year.
Salaries have increased, bringing in more income taxes. But the state also benefited mightily last year from big collections on capital gains taxes due to a booming market in 2021.
Kemp’s economist and budget staff say the skyrocketing revenue increases of the past will disappear in the second half of fiscal 2023, which ends June 30, in large part because of last year’s dip in the stock market.
State fiscal economist Jeffrey Dorfman of the University of Georgia told state lawmakers in January that the jolt will come as Georgians file their income tax returns. The state, he said, could see a $3 billion drop from last year in revenue from capital gains taxes because of the 2022 market decline.
Taxes were paid in fiscal 2022 based on 2021 earnings, and the S&P 500 index returned 26.61% in 2021. By contrast, last year it was down almost 20%.
That and slower corporate income taxes from earnings will mean a decline in collections for fiscal 2023 and a much smaller surplus, Dorfman said.
For the first seven months of fiscal 2023, tax collections are still up 5.6%, or about $1 billion, over the same period last year. But the economist said those kinds of gains won’t hold as Georgians file their income tax returns.
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