County Income Taxes Showing Weakness

According to the Comptroller’s electronic message to local budget and finance staff, the fourth quarter distribution of local income taxes to counties is showing signs of weakness.  The distribution totals $1.08 billion, a 1.1% decline from the previous year.

This distribution is based on withholding and estimated tax payments attributable to the fourth quarter of calendar year 2013 and third quarter withholding receipts.  The message explains what may be causing this decline:

Fourth quarter withholding receipts increased by 1.2%, while estimated payments decreased by 6.8%.  Total receipts increased just 0.3%.  Several factors likely serve to restrain withholding growth and reduce estimated payments.  First, the fourth quarter of tax year 2012 was an extraordinary period; the nation was approaching the fiscal cliff and the expectation was that there was a significant chance for higher tax rates across the board.  As such, it seems that taxpayers were incited to recognize income (e.g., wages, business, capital gains, etc) that they otherwise may not have (much of it likely pulled forward).  The results were increases in 2012 fourth quarter withholding and estimated payments to the tune of 5.7% and 25.2%, respectively. Second, the State’s retroactive tax change for tax year 2012 may have inflated 2012 fourth quarter collections relative to the prior year.

The Comptroller’s Office suggests that weaker than expected job growth will continue to affect income tax distributions.

Official statistics show job growth of 1.4% in Maryland for 2013, bench marking data, which has yet to be incorporated into the official statistics, indicates that growth was closer to just 0.9%.  Furthermore, according to official statistics, job growth in the District of Columbia, an area of high-paying jobs for many Maryland residents, was just 0.3%.  Couple weak job growth with a high unemployment rate and there is little upwards pressure for wage growth.

If you have any questions about the February 28 distribution, please contact Jim Pasko of the Revenue Administration Division at (410)260-7521 or Jason Brohawn 410-260-6159.