HONOLULU - The Department of Taxation's Preliminary Comparative Statement of State General Fund for April 2003 reveals that both individual and corporate income tax revenues are continuing to fall despite a relatively strong local economy.
Individual income tax collections dropped precipitously by 56.3% (-$68.5 million) in April 2003 compared to April 2002. More importantly because of its negative implications for the remainder of the 2003 calendar year, individual estimated income tax payments are down 54.2% (-$21.8 million). Cumulative individual income tax collections through April 30, 2003 are down by 9.9% from the previous fiscal year despite an $11.0 million increase in withholding tax receipts.
Corporate income tax collections also declined steeply. They were down 36.9% (-$6.1 million) in April 2003 compared to April 2002. Corporate estimated income tax payments are down 15.4% (-$2.7 million). Cumulative corporate estimated income tax payments are down by 111.3% (-$39.4 million) through April 30, 2003. Never before has the State cumulatively paid more corporate income tax refunds ($45.9 million) than it had received in corporate income tax collections ($41.8 million) this late in the fiscal year.
This is in stark contrast to cumulative general excise tax collections, which are up by 8.7% over the previous year ($118.7 million), reflecting a sound local economy. Because the general excise tax applies to a large range of transactions, it is generally considered the best single indicator of economic activity in the state.
Other indicators of general economic conditions are also positive. Wages paid to Hawaii employees are steady, as indicated by the 1.3% increase in cumulative taxes withheld from wages over the previous year. Transient accommodations tax collections for the year are also up by 6%.
While it is not possible to identify the exact causes of the declines in corporate income tax and non-wage components of individual income tax revenues, the April numbers appear to support the conclusion reached by the Council on Revenues in its March 14, 2003 report to Governor Lingle, that various open-ended income tax credits enacted in recent years are a major component of the explanation.
These credits include the 100% high technology business investment income tax credit and 20% refundable research credit provided under Act 221, Session Laws of Hawaii (SLH) 2001, and 4% residential-construction and 10% hotel-remodeling tax credits.
"We've known for months that Act 221 and other uncapped tax credits turned out to be far more generous than the Legislature realized when enacting them two years ago. The real news now is that the reduction in tax revenues for April is much bigger than was anticipated by the Council on Revenues just two months ago," said State Tax Director Kurt Kawafuchi. "If this trend continues, we expect that tax revenues will increase by only 0.7% for the entire fiscal year, which is about $100 million less than projected by the Council just two months ago."