Wisconsin corporate taxes keep falling, but wait till next month to see if we're in crisis

With tax-filing season winding down last week, it’s the time of the year where we start to find out what state finances will really look like ahead of a big state election in November. But newly-released figures from the Wisconsin Department of Revenue actually muddied the waters when it came to figuring out that direction.

At first glance, the Wisconsin DOR says income taxes are either way down or way up, depending on how you choose to look at it.

Income taxes, Wisconsin
Mar 2018 vs Mar 2017 unadjusted -58.0%
Mar 2018 vs Mar 2017 adjusted +24.4%

FY 18 vs FY 17 unadjusted +1.3%
FY 18 vs FY 17 adjusted +6.0%
FY 18 LFB projection vs FY 17 +4.24%

These notes help explain March's big income tax “adjustment” of more than $253 million.

1. For fiscal year (FY) 2018, the adjusted line includes withholding that was received on the first working day of April, rather than the last day of March, which was a weekend day. The collections-to-date were also affected for FY2018.

In 2017, March 31 was on a Friday, and it wasn’t Good Friday like this year, so there was no need to build such an adjustment. And while the percentage changes are large because net revenues are smaller due to lots of refunds in March, that’s still a major difference whether you go on the “adjusted” or “unadjusted” income tax figures. So the projections fall right in the middle of the adjusted and unadjusted numbers. When things “adjust back” in April, we’ll see which number is closer to reality.

Also in the report, when I first looked at the corporate tax figures for March, it looked like a bloodbath for the state that would mean a sizable budget hole.

Corporate taxes, Wisconsin
Mar 2018 vs Mar 2017 -46.4%
FY 18 vs FY 17 -18.1%
FY 18 LFB projection vs FY 17 +3.2%

But the DOR had a caveat with this as well.

3. 2017 Wisconsin Act 2 changed many corporate due dates from March 15 to April 15.

Ah, that helps explain it. If we assume that the drop in corporate revenues is due to this change in filing deadlines, and instead figure that March would have had a 3.7% year-over-year growth in corporate tax revenues (which would match the estimates for Jan-June 2018 from the LFB’s revenue projections), this would have increased March’s corporate taxes by about $91 million.

But even considering the change in due dates, there are still concerns with those corporate revenue numbers. That extra $91 million would still have left corporate taxes for FY 2018 DOWN by -3.5% with only 3 months to go. That’s quite a gap, and it would mean we are on our way to a 3rd straight year of declining corporate revenues in Wisconsin.

Sales tax growth declined in March (only 1.2%), but stronger months before then means that we are right in line with the 4.6% growth the LFB projected for Fiscal 2018. So it’s the income and corporate taxes that seem likely to be the key as to whether Wisconsin exceeds or falls short of those projections.

A lot of these variables will be straightened out in the April revenue report. If it goes to the good side, then we will be increasing our very small budget cushion, and in better shape for the future. But if we are underperforming, then we are staring at a 2018-19 budget deficit that has to be fixed, along with the $1 billion structural deficit that is looming in the next budget for 2019-21.