California's top fiscal review office said today the state is now poised to finish January $5 billion ahead for the month in the wake of state and federal tax changes.
The nonpartisan Legislative Analyst's Office told The Bee last week that it believed the state would finish the month $4 billion ahead based on record payments from quarterly tax filers through the middle of January. The overages are compared against a monthly forecast that Gov. Jerry Brown issued just 20 days ago.
California income tax revenues are notoriously difficult to predict in any year, but a mix of rare state and federal tax changes that affect top earners have complicated this particular tax season. The bulk of unanticipated January money comes from taxes paid on income for the final three months of 2012.
As we wrote last week, the LAO believes that three factors could be at play: 1) the prospect of higher 2013 federal tax rates prompted top earners to take more capital gains and dividends in 2012; 2) a retroactive state income tax hike could have prompted wealthy earners to pay the state earlier than expected; and 3) improvements in the economy beyond those predicted by fiscal experts.
That last factor could include more Facebook-related income than anticipated, the analyst said.
The LAO raised its estimate for January by another $1 billion based on more than $500 million in extra tax withholding, as well as fewer income tax refunds paid by the state than expected. The refund factor could be yet another twist resulting from this year's tax changes, said LAO chief forecaster Jason Sisney. Because federal leaders waited until the last minute to extend and update 2012 tax provisions like the Alternative Minimum Tax, taxpayers have faced delays in filing and obtaining refunds this year.