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February 2019 revenue assessment report available

Providence, R.I. -- The Rhode Island Department of Revenue (DOR) today released its FY 2019 Revenue Assessment Report for February 2019. The Revenue Assessment Report, which is issued on a monthly basis, compares the adjusted general revenues by revenue source on a fiscal year-to-date and monthly basis to expected general revenues by revenue source. Expected general revenues are estimated by DOR's Office of Revenue Analysis from the FY 2019 revenue estimates adopted at the November 2018 Revenue Estimating Conference (REC). The methodology underlying the Office of Revenue Analysis' estimates is contained in the report. The principals of the November 2018 REC revised the estimate for FY 2019 total general revenues down by $5.4 million from the enacted budget.

February Year-To-Date Performance. On a fiscal year-to-date basis, the February 2019 report shows that adjusted total general revenues are less than expected total general revenues, based on the revised revenue estimates adopted at the November 2018 Revenue Estimating Conference (REC) and the Office of Revenue Analysis' estimation methodology, with adjusted total general revenues 1.4 percent, or $33.4 million, below expectations. The primary sources of the variance are: personal income tax revenues which are down $43.2 million, or 4.9 percent, from revised expectations; insurance company gross premiums tax revenues which are $12.0 million, or 21.0 percent below expectations; financial institutions tax revenues which lag the estimate by $5.1 million, or 55.7 percent; public utilities gross earnings tax revenues which are $4.4 million, or 8.8 percent, below the fiscal year-to-date through February revised estimate; and health care provider assessment adjusted revenues which trail the revised estimate by $4.0 million, a variance of 12.0 percent. The underperformance in personal income tax revenues is due in large part to estimated payments revenues which are $28.8 million below the estimate or 17.1 percent. This pattern is occurring across the country and is likely attributable in part to the passage of the Tax Cuts and Jobs Act (TCJA) in December of 2017. For example, Massachusetts reported that personal income tax estimated payments were 30.4 percent below their benchmark estimate for February. The deficits in the business tax revenues likely reflect the change to a quarterly estimated payments schedule in tax year 2018 and the uncertainty in knowing a priori when estimated payments would actually be received.

Offsetting these shortfalls are departmental receipts adjusted revenues which lead revised expectations by $10.9 million or 8.1 percent; business corporation tax revenues, which continue to buck the trend of other business tax revenues and are $8.5 million more than estimated, or 10.1 percent; adjusted estate and transfer tax revenues which are more than the revised estimate by $8.3 million or 37.0 percent; sales and use tax revenues which are $5.2 million above the revised estimate for FY 2019 through February, or 0.7 percent; the adjusted lottery transfer which is ahead of the revised expected transfer by $2.0 million or 0.9 percent; and adjusted cigarette and other tobacco products tax revenues which are $1.5 million above revised expectations, a variance of 1.6 percent.

February Monthly Performance. For the month of February, the report indicates that adjusted total general revenues are $13.8 million below the revised estimate adopted at the November 2018 REC or a variance of 7.4 percent. The primary drivers of this shortfall are: adjusted personal income tax revenues which are $12.5 million less than the estimate for February or down 40.2 percent due in large part to underperformance in personal income tax withholding payments, $10.1 million or 9.1 percent below expectations; adjusted estimated payments, $1.2 million or 27.2 percent less than expected; and personal income tax refunds and adjustments, $1.7 million or 1.9 percent more than estimated; adjusted lottery transfer revenues which are $1.5 million or 4.7 percent behind the estimate due to a shortfall in sports betting revenues of $1.9 million; monthly adjusted insurance company gross premiums tax revenues which are $1.1 million below the monthly estimate, or 56.4 percent; and Monthly adjusted cigarette and other tobacco products tax revenues which are $1.0 million less than the revised estimate for February, or 10.8 percent. The only substantive outperformance for the month of February was estate and transfer tax revenues which were $1.3 million above monthly expectations, a variance of 57.4 percent.

Regarding the February year-to-date performance, Director of Revenue Mark A. Furcolo made the following observations: Fiscal year-to-date adjusted total general revenues through February are below revised expectations, although the shortfalls appear to be concentrated in a few tax types; Adjusted personal income tax revenues are $43.2 million below expectations, a variance of 4.9 percent, due to lower than expected personal income tax estimated and withholding payments and larger than expected refunds and adjustments while final payments continue to exceed expectations; o The personal income tax revenue estimate was revised down by $4.9 million at the November 2018 Revenue Estimating Conference as follows: estimated payments revised down by $3.6 million, final payments revised up by $2.8 million, withholding payments revised up by $3.6 million, and refunds and adjustments increased by $7.3 million; o FY 2019 year-to-date adjusted personal income tax revenues are $23.0 million, or 2.7 percent, lower than FY 2018 year-to-date adjusted personal income tax revenues were at this time last year, mostly due to the sharp swing in estimated payments which are down $36.0 million from FY 2018 through February. Adjusted sales and use tax revenues through February are $5.2 million above revised expectations, or 0.7 percent; o The sales and use tax revenue estimate was revised upward by $9.9 million at the November 2018 REC so eclipsing the revised estimate is encouraging; o FY 2019 year-to-date adjusted sales and use tax revenues are $43.9 million, or 6.2 percent, more than FY 2018 year-to-date adjusted sales and use tax revenues were at this time last year. Adjusted departmental receipts revenues are $10.9 million above the revised estimate, a variance of 8.1 percent; o The departmental receipts revenue estimate was revised upward by $1.6 million at the November 2018 REC; and Adjusted general business tax revenues are a combined $16.9 million below revised expectations, a variance of 7.2 percent; o The estimates for these revenue items were revised down by $25.9 million on a combined basis at the November 2018 REC with most of that downward revision being made to business corporation tax revenues which are ahead of the estimate for FY 2019 through February; o The shortfall in general business tax revenues appears to be related to the change in the estimated payments schedule that took effect for tax year 2018. It may be the case that some taxpayers will find they have underpaid their estimated payments for tax year 2018 and as a result will have increased final payments due in April.

Regarding the month of February performance, Director of Revenue Mark A. Furcolo made the following observations: February total general revenues were below the monthly estimate based on the revisions adopted at the November 2018 Revenue Estimating Conference, trailing revised expectations by $13.8 million, or 7.4 percent, a deterioration from the January 2019 performance; Adjusted personal income tax revenues for February were below expectations driven in large part by a shortfall in withholding payments, reinforced by estimated payments falling short of the estimate and refunds and adjustments exceeding expectations; Sales and use tax revenues on an adjusted basis are effectively equal to the revised estimates for February; February adjusted estate and transfer tax revenues are $1.3 million more than revised expectations, a variance of 57.4 percent; and Adjusted insurance company gross premiums tax and cigarette and other tobacco products tax revenues for February are $2.1 million behind the revised monthly estimate; Finally, the lottery transfer for February is 4.7 percent, or $1.5 million, less than expected, primarily due to the underperformance of the sports betting revenues through January.

The entire report can be found on the Department of Revenue's web site at http://www.dor.ri.gov/revenue-analysis/2019.php.

Questions or comments on the report should be directed to Paul Grimaldi, Chief of Information and Public Relations by e-mail at paul.grimaldi@revenue.ri.gov or by phone at (401) 574-8766.

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