While the more devastating effects of the coronavirus lie ahead for New Hampshire, its impact is already felt in its coffers as state revenues, particularly businesses taxes, are less than anticipated.
The closing of most non-essential businesses because of the virus means owners are reassessing their financial outlooks for the remainder of the year and lowering their estimated state tax liabilities for the business enterprise and business profits taxes.
In figures released Thursday by the Department of Administrative Services, business tax returns for March are $17.5 million below what budget writers had projected.
Combined, the two taxes produced $98 million for March, while budget writers estimated the state would need $115.5 million to balance the budget.
However, the $98 million is more than the $85 million business taxes produced in March a year ago.
Department of Revenue Administration officials say while there was an increase in return estimates, extensions and past taxes owed, the refund requests offset the increase and was higher than a year ago.
In other words, business owners refund requests outstripped any increase in tax revenue. Not a good sign.
Perhaps more telling is the amount of money business taxes have raised from July to March. This fiscal year, the total is $467 million, while a year ago it was $549 million or a difference of $82 million, down 15 percent.
Speaking at a press conference Wednesday, Gov. Chris Sununu said he expects a large tax shortfall for the fiscal year and noted cities’ and towns’ revenues would also be impacted as people may not pay property taxes due to lost jobs or layoffs.
He said he expects “severe budget cuts” in some departments and is working with department heads, but other areas need more resources such as the Division for Children, Youth and Family Services, the prison system and nurses.
The state currently has many open positions and those will not be filled, he said, as a way to save some money.
Sununu also said he expects the rooms and meals tax returns to be below estimates for the next couple of months. The tax is the second largest revenue generator for the state behind business taxes.
With most restaurants and pubs closed, except for the few offering takeout, there is not a lot of meal revenue to tax.
Hotels were not ordered to close, but with all the surrounding states having stay-at-home orders, like New Hampshire’s, most are fairly empty.
Rooms and meals revenue is about a month behind so March revenues reflect the hospitality industry’s economic activity in February, before the full force of the epidemic took hold.
Rooms and meals revenues for March were $26.5 million, which is about $700,000 more than estimated, and $1.5 million more than last year. To date, rooms and meals revenue is $281.5 million, which is $13.4 million more than a year ago, and $2.3 million more than projections.
That is bound to change in the next few months.
Total March Revenues
State revenues for March were below estimates by $10.3 million, at $667 million, which includes the $363 million statewide education property tax collected in March.
Overall state revenue is $13.4 million ahead of estimates, but $63 million less than what was collected a year ago with three months left in the 2020 fiscal year.
As you might imagine in stressful times with people taking precautions to avoid catching the virus, liquor and tobacco revenues are above estimates for March.
Tobacco revenues are $1.6 million ahead of estimates, with $17.6 million in revenue, while the liquor commission produced $10.8 million, or $3.4 million more than anticipated.
The insurance tax was also well ahead of estimates producing $117.4 million, a $7.4 million surplus for the month, but below last year’s collection by $2.8 million.
Revenue officials said the increase is due to the timing of payments and an increase in the tax base meaning more policies were written or premiums increased.
The state’s highway fund receives revenue from vehicle registrations, the gas tax and fees of one kind or another.
While traffic has decreased significantly since the middle of March, the lag in reporting the gas tax would indicate traveling was about what it was a year ago, until the coronavirus hit the state.
Gas tax revenues were almost identical in March to a year ago, $96 million.
Vehicle registrations were well ahead of last March producing $54 million which is about $6 million more than last year.
Overall, the Highway Fund collected $176.4 million in March, $7.6 million more than estimates.
The Highway Fund has been declining over the years as greater gas efficiency and alternative fuel use are lowering gas tax receipts.
With much less travel expected for the next few months, if not into the summer, the problem will likely be exacerbated.
Fish and Game
Like the Highway Fund, the Fish and Game Fund, which pays for most of the Fish and Game Department’s activities, has also been in decline.
March had a small deficit compared to estimates producing $7.9 million instead of the $8.2 million estimate.
The full impact of the state’s coronavirus infection will be experienced during the remaining three months of the 2020 fiscal year, with much lower revenues before things begin to turn around.
Experts call the state’s tax system inelastic, which means it responds slowly to economic changes. The revenue does not decline as fast other states with sales or income taxes, but does not increase as quickly once the economy begins to improve.
The next six months are bound to have a significant impact on the state budget and how lawmakers can respond to the challenges.
Garry Rayno may be reached at email@example.com