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Discussion on business tax collections and forecasting
4:10:06
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Councilmember Brannan and the Comptroller's office discuss the strong performance of business tax collections and the challenges in forecasting future revenues.
- Business tax collections have outpaced other revenue sources and consistently outperformed forecasts
- The Comptroller's office raised their baseline forecast for business taxes before other forecasters
- Factors that could cause collections to drop include profit margin changes from tariffs and GDP slowdown
- Business taxes are historically difficult to forecast due to lack of persistency in growth rates
Justin Brannan
4:10:06
I want to talk about business taxes.
4:10:08
The business tax collections have remained strong.
4:10:12
In a recently released pour from your office, you highlighted business tax collections have outpaced other revenue sources and consistently outperformed the forecast.
4:10:22
But the Controller's Office business tax forecast shows FY 2025 total business taxes at $522,000,000 above prior fiscal year, which is a significant deceleration considering we've already collected $500,000,000 above last fiscal year in business taxes.
4:10:39
Could you talk about that a bit?
Francesco Brindisi
4:10:42
Yeah.
4:10:43
So I'm glad that you looked at our fiscal notes.
Justin Brannan
4:10:46
I'm the I'm the
Francesco Brindisi
4:10:47
work very hard on them.
4:10:48
And they're all technical.
4:10:51
So we're grateful for that.
4:10:54
We were actually the first to raise the baseline forecast for business taxes before other forecasters certainly.
4:11:04
And as is shown in that fiscal note.
4:11:07
We found a number of things that are important to note, the very strong revenues from C corporations, as well as the increase, the broad based increase in unincorporated business tax.
4:11:22
Our new US forecast is a little weaker than what we use for our December forecast.
4:11:29
And that sort of is reflected in a little bit less optimistic projection.
4:11:38
We raised $40,000,000 for this year.
4:11:40
It's entirely possible that there is going to be more revenue coming in this year to the tune possibly of what your economists are projecting.
4:11:50
But it's a reflection of our US forecast.
Justin Brannan
4:11:55
What factors would cause collections to drop?
Francesco Brindisi
4:11:59
Profit margins from tariffs would be one.
4:12:04
The slowdown of GDP also due to restrictive fiscal policy and international trade policy.
Justin Brannan
4:12:11
Is that part of why you think that business taxes are so difficult to forecast?
Francesco Brindisi
4:12:15
Business taxes have been historically very difficult to forecast.
4:12:19
And there is no persistency in its growth rate.
4:12:22
It's a very unusual time period where there has been consistent growth from one year to the next and significant growth as well.
4:12:35
So that is something that is not typical of these taxes.
4:12:39
And that's one of the reasons why we wrote that fiscal note to investigate that issue.