Poor state tax collections in April were a sign of what to expect in May. In April, with the economy shut down, sales tax revenues took a dive. And with income tax deadlines extended until July 15, the usual big April collections evaporated. In May, the economy was only beginning to reopen, and the income taxes were still not yet due, so nobody really anticipated the May numbers to be much better.

The only real difference is that some of those income tax collections, as expected, began to re-materialize. In other words, the huge April drop in income taxes was partially recovered in May. As a direct consequence, the individual income tax collections for May (not typically a big month) looked a lot better in terms of how they compared to forecasted projections than the April collections.

Likewise, you can expect June and July to look comparatively good as the uncollected April projections continue to come in prior to the extended deadline. But the biggest contributor to Indiana’s general fund – sales taxes – was again off in May by nearly identical marks as in April – a little under 15% or a little over $100 million off projections. These drops hurt. Thank goodness for the legislation that requires online sales tax collections; otherwise, the sales tax hit would be even worse!

All this to say that it is probably not going to be until August that Indiana’s fiscal picture begins to get clearer. It’s all about the economy now. We need traditional sales transactions to regain ground, at least gradually through the rest of the year to stop this $100 million a month hemorrhaging. And the employment numbers are going to have to rebound some more going into the next fiscal year and next budget, or there will be a significant impact on individual income tax collections next year. Corporate taxes, casino taxes and other sources have a bearing, but Indiana needs the sales tax and individual income taxes to recover in order to truly make its way back.

Resource: Bill Waltz at (317) 264-6887 or email: bwaltz@indianachamber.com