Ohio revenues slip again in January, but OBM remains bullish

Hannah News Report 

Tax revenues are down about half a percent for the fiscal year so far after another underperformance in January, but the overall revenue picture and sizable underspending leave Ohio’s budget on solid footing, Office of Budget and Management (OBM) Director Kim Murnieks said Wednesday. Outsize refunds linked to a 2022 tax law change are the main driver of under-estimate income tax collections, she said. 

According to preliminary revenue figures from OBM, the income tax missed estimates by 5.1 percent or $57.6 million. Sales taxes were under estimates by about $18.5 million, with a 2.2 percent or $24 million underperformance in the non-auto sales tax, which was partially offset by a 4 percent or $5.8 million overperformance in the auto sales tax. Total January tax revenues of $2.58 billion were $70.4 million or 2.7 percent below estimates. 

Overall tax collections for FY24 so far are $89.4 million or 0.5 percent below estimates. The income tax is the biggest driver of this dynamic, as it lags by 2.6 percent or nearly $160 million. 

While the past two months have taken a tax revenue surplus nearing a quarter billion dollars and turned it into a nearly $90 million shortfall, Murnieks noted state investment earnings are far above estimates, while General Revenue Fund spending is several hundred million dollars below expectations, largely in Medicaid. 

As far as economic signals go, Murnieks said employer withholding for the income tax remains strong, and she linked the underperformance in collections to large refunds for tax year 2022 for filers who sought an extension and took advantage of the pass-through entity workaround to federal changes to the state and local tax (SALT) deduction. 

“These [refund] levels were unanticipated, and they resulted from taxpayer behavior changes driven by federal tax opportunities,” Murnieks said. 

Murnieks said that, under 134-S.B. 246 (Rulli-Lang), Ohio filers were enabled to take advantage of IRS guidance stating the general $10,000 cap on itemized SALT deductions under the 2017 Trump-era tax cuts did not apply to pass-through entities. Murnieks said OBM does not expect this phenomenon of large refunds linked to the SALT workaround to repeat itself. 

“At this point in time, the underlying factors all continue to be strong. Employer withholding continues to perform above estimate. We continue to see high numbers of filled jobs, low unemployment, good growth in our sales tax receipts,” she said. 

OBM particularly noted that earnings on state investments yielded about $69 million more than expected in January and are almost $140 million or 153 percent above expectations for FY24 so far. 

Tax receipts through the first seven months of FY24 are slightly behind where they were at this point in FY23, totaling $16.58 billion versus $16.7 billion collected during the same period of the prior fiscal year.