Sluggish Income Tax Distributions Mirror Underlying Economy

While job growth may be on the rise in Maryland, unfortunately local income tax collections are not quite keeping pace. The State’s August 2016 estimated net distribution of income tax revenues payable to counties for the second quarter of tax year 2016 totaled $56.4 million, which is about $20 million less than the same period last year. This reflects low actual collections from withholdings and estimated payments.

Withholdings in the 2016 second quarter grew extremely sluggishly at 2.5% – reflecting low overall wage growth. The Comptroller’s office interprets this to mean that, although overall employment is up, those job categories experiencing the highest growth rates are actually paying well below average wages. Once the Bureau of Labor Statistics publishes its revised employment data for the second quarter of 2016, analysts will have a better understanding for the dramatic reduction.

Estimated income tax payments for the second quarter of 2016 were also weak, which preliminary data suggests results from negative growth in capital gains. Taxpayers may well have adjusted their estimated payments in line with safe harbor provisions.

Net taxable income increased in tax year 2015 by 6.4%, and local tax liability increased by 5.8%, painting a somewhat different picture than the August 2016 second quarterly estimates. James Pasko, Manager, Revenue Accounting for the Comptroller of Maryland, opines:

It is likely that the increase in return volume is both driving the increase generally, but also related to taxpayers filing sooner to receive their refunds.  Therefore, we report more income and liability from returns, but the whole picture will not be clear until extension returns are processed and information is disseminated in November.

Read the August 2016 distribution report here. County officials with questions about the most recent distribution can contact Mr. Pasko at 410.260.7521 or at jpasko@comp.state.md.us.

 

A history of the local income tax distributions to local governments can be found on the Office of the Comptroller’s website.

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