Ohio FY20 GRF Tax Revenue Recap & FY21 GRF Tax Revenue Update

At this time last year, the COVID-19 pandemic and the related contraction of Ohio’s economy placed Ohio in the midst of a nearly unprecedented impact on the state’s General Revenue Fund (GRF) tax revenues. At the end of February 2020 (2/3rd of the way through the FY20 fiscal year), state GRF tax receipts were $249 million above estimate. However, February was the last full month before the pandemic-related stay-at-home and business shut-down orders were issued by Governor Mike DeWine. Over the four month “Covid-contraction” period from March-June 2020, state GRF tax revenues were $1.348 billion below estimates. Adjusting for the fact that roughly $80 million of the revenue shortfall relative to estimated levels was the result of early payment of foreign insurance taxes in February, the March-June pandemic time frame resulted in a reduction of state tax revenue of $1.270 billion compared to what had been estimated. Furthermore, this reduction was entirely attributable to a combined $1.3 billion reduction in state sales and income tax receipts over the four-month March-June time period. The net effect of this shortfall was that final GRF tax revenues for FY20 were $1.099 billion below estimate.

Table 1 below provides an overview of state income tax and sales tax revenues in FY20, with an emphasis on the March-June time frame. (Note that non-auto and auto sales are combined in Table 1 due to space constraints, even though OBM typically reports them separately.)

Table 1: FY20 March-June GRF Sales Tax & Income Tax Revenues: ($ in Millions)

Month Sales Tax Estimate Sales Tax Actual Difference Income Tax Estimate Income Tax Actual Difference
July-Feb. Subtotal $7,272.0 $7,417.4 $145.4 $5,608.0 $5,590.4 -$17.6
March $819.5 $751.5 -$68.0 $438.8 $416.5 -$22.3
April $984.6 $747.9 -$236.7 $1,258.0 $622.2 -$635.7
May $949.8 $782.5 -$167.3 $605.1 $513.7 -$91.4
June $987.9 $986.5 -$1.4 $816.5 $738.5 -$78.0
March -June Total $3,741.8 $3,268.4 -$473.4 $3,118.4 $2,290.9 -$827.5
4 Month % Reduction -12.7% -26.5%

The top row of Table 1 shows that through the first eight months of FY20 auto and non-auto sales tax revenues were a combined $145.4 million (2.0%) ahead of estimate, while personal income tax revenue was $17.6 million (-0.3%) below estimate. However, the remainder of Table 1 shows that from March-June, sales tax revenues were $473.4 million (12.7%) below estimate and income tax revenues were $827.5 million (26.5%) below estimate. Adding these two figures results in a total loss of expected sales and income tax revenue over the final four months of FY20 of $1.301 billion. While not shown in Table 1, non-auto sales tax revenue was $381.8 million below estimate from March- June while auto sales tax revenue was $91.6 million below estimate, which add up to the sales tax total of $473.4 million below estimate.

Table 2 reports actual vs. estimated FY20 GRF tax revenues for each state tax and shows that total FY20 state tax revenues fell short of estimated revenues by $1.009 billion. This tax revenue loss, combined with the decision not to tap into the state’s $2.7 billion Rainy Day fund in FY20, was what necessitated the $775 million in budget cuts implemented by Governor DeWine in May 2020. $300 million of these reductions were applied to the school foundation formula, although the legislature later restored $23 million of the reduction for a net cut of $277 million.

Table 2: FY20 Final General Revenue Fund Tax Revenues: ($ in Millions)

GRF Tax Actual Revenue Estimated Revenue Difference
Non-Auto Sales Tax $9,183 $9,466 ($283)
Auto Sales Tax $1,503 $1,548 ($45)
Income Tax $7,881 $8,726 ($845)
Commercial Activity Tax $1,672 $1,639 $33
Cigarette Tax $913 $892 $21
Kilowatt Hour Tax $332 $335 ($3)
Foreign Insurance Tax $305 $292 $13
Domestic Insurance Tax $303 $301 $2
Financial Institutions Tax $215 $190 $25
Public Utility Excise Tax $141 $140 $1
Natural Gas MCF Tax $60 $78 ($18)
Alcoholic Beverage Tax $54 $56 ($2)
Liquor Gallonage Tax $53 $50 $3
Petroleum Activity Tax $9 $10 ($1)
Total GRF Taxes $22,623 $23,722 ($1,099)

 Table 2 shows that the net result of the $473.4 million in lost sales tax revenue over the last four months of the fiscal year meant that total sales tax revenues went from $145.4 million above estimate through February to $328.0 million ($283 +$45) below estimate through June.

A Complication: The Delay of the Income Tax Filing Date

To completely understand the figures shown in Table 2 it is necessary to understand the impact of the decision to delay the filing date for state income taxes. In order to avoid requiring Ohio taxpayers to make final income tax payments for 2019 and estimated tax payments for 2020 while in the midst of the pandemic, the state of Ohio agreed to match the Federal government’s decision to delay the income tax filing date from April 15th to July 15th. This delay meant that income tax returns for 2019 and estimated tax payments for 2020 did not need to be filed in FY20, as July is the first month of the FY21 fiscal year. Analysis of income tax data showing April 2020 estimated and annual return tax payments in comparison with 2019 figures suggests that roughly $530 million of the $827.5 million reduction in income tax revenues from March-June was due to the delay of the filing date from April to July. This meant that an estimated $297.5 million (9.5%) in expected income tax revenue was lost from March through June as a result of the Covid-19 pandemic. ($827.5 million reduction in revenues – $530 million lost due to filing date change = $297.5 million lost due to Covid impact).

FY21 GRF Estimated Tax Revenues
As a result of the $1.1 billion Covid-driven reduction in FY20 GRF tax revenues discussed above, the Office of Budget and Management (OBM) revised its FY21 GRF tax revenue estimates downward in May. The revised FY21 tax revenue estimates were roughly $2.3 billion lower than the original FY21 estimates from July 2019.  FY21 revenue estimates were revised downward, as follows:

  1. Non-auto sales tax revenues were lowered by $1.249 billion (-13.0%)
  2. Auto sales tax revenues were lowered by $220 million (-13.8%)
  3. Personal income tax revenues were lowered by $660 million (-7.2%)
  4. Commercial Activity tax revenues were lowered by $163 million (-9.9%)

Table 3 provides a comparison of the original July 2019 FY21 tax revenue estimates with the revised May 2020 FY21 tax revenue estimates.

Table 3: FY21 Revised GRF Tax Revenue Estimates: ($ in Millions)

GRF Tax July 2019 Revenue Estimate May 2020 Revenue Estimate Reduction Amount % Reduction
Non-Auto Sales Tax $9,589 $8,340 -$1,249 -13.0%
Auto Sales Tax $1,592 $1,372 -$220 -13.8%
Sales Tax Total $11,181 $9,712 -$1,469 -13.1%
Income Tax $9,187 $8,527 -$660 -7.2%
Commercial Activity Tax $1,653 $1,490 -$163 -9.9%
All Other Taxes $2,329 $2,329 $0
Total GRF Tax Revenue $24,350 $22,058 -$2,292 -9.4%

 The most important practical impact of the projected $2.3 billion estimated shortfall in FY21 tax revenues was the extension of the $775 million in FY20 budget cuts made in June into FY21.

FY21 Actual GRF Tax Revenues (July 2020 – March 2021)
Table 4 below provides a summary of FY21 actual revenues compared to the original July 2019 estimates through the first nine months of the fiscal year (July 2020 – March 2021). Note that the income tax revenue estimate has been adjusted to reflect the delay in the income tax filing date from April 15th to July 15th; however, the estimated revenue figures shown in Table 4 do NOT reflect the downward revenue revisions made by OBM in June (shown in Table 3 above).

Table 4: FY21 Actual vs. Originally Estimated* GRF Tax Revenues July-March: ($ in Millions)

GRF Tax July-March 2020 Actual Revenues July 2019 Estimated Revenues Difference % Difference
Non-Auto Sales Tax $7,398 $7,092 $307 4.3%
Auto Sales Tax $1,308 $1,137 $171 15.0%
Sales Tax Total $8,706 $8,229 $478 5.8%
Income Tax* $7,035 $6,836 $199 2.9%
Cigarette Tax $640 $592 $48 8.1%
Financial Institutions Tax $147 $112 $35 31.3%
Commercial Activity Tax $1,233 $1,225 $8 0.7%
Kilowatt Hour Tax $236 $257 -$21 -8.2%
Public Utility Excise Tax $82 $101 -$19 18.8%
All Other Taxes $484 $448 $36 8.0%
Total GRF Tax Revenue $18,563 $17,800 $763 4.3%

* Estimated Income Tax Revenues adjusted for delay of filing date from April 15th (FY20) to July 15th. (FY21).

Table 4 shows that FY21 Non-Auto Sales tax revenues were $307 million (4.3%) more than forecasted through March (the first 9 months of FY21). Similarly, FY21 Auto Sales tax revenues are $171 million (15.0%) more than estimated through March. Total Sales Tax revenues are $478 million (5.8%) more than estimates through the first nine months of FY21. The Ohio Office of Budget & Management (OBM) attributes the significant increase in actual sales tax revenues relative to estimates to be due to a combination of continued Federal stimulus payments and a shift in consumption patterns away from non-taxable services and towards taxable goods.

Table 4 also shows that FY21 Personal Income tax revenues were $199 million (2.9%) above the original July 2019 estimated revenues through March (after adjusting for the delay in the 2020 income tax payment due date from April 15th to July 15th) and that Cigarette tax revenues are $48 million (8.1%) above the original July 2019 estimated level. Only the Public Utility Excise Tax ($19 million below estimate) and the Kilowatt Hour Tax ($20.5 million below estimate) were appreciably below the originally estimated revenue levels through the first 9 months of FY21.

The bottom line in Table 4 is that Total GRF Tax Revenues were $763 million above estimates through March (the first nine months of FY21). Again, this revenue difference is in comparison to the original July 2019 revenue estimates, not to the June 2020 lowered revenue estimates. Additionally, GRF Tax Revenues through March of 2021 were also running $1.573 billion ahead of collections when compared to March of 2020 GRF Revenues. However, it is important to note that roughly 45% of the $1.573 billion figure is due to the delay of the income tax payment deadline from April 15th to July 15th.

Clearly the anticipated massive $2.3 billion reduction in FY21 expected tax revenue that was forecast by OBM in June 2020 did not materialize. This is the reason why in January OBM restored $152 million of the $277 million reduction in FY21 foundation formula funding that had carried over from the FY20 reduction.

As a final note, Ohio once again delayed the income tax payment date in 2021, this time from April 15th to May 17th. OBM recently released the April GRF tax revenue data and while sales tax revenues continue to outpace estimates ($228 million over-estimate in April alone), personal income tax revenues were $555 million below estimate in April. OBM attributes this entirely to the delay in the income tax payment deadline and expects the figure to correct in May.

Whatever the May and June tax revenues may show, it is crystal clear at this point that Ohio has weathered a once in a century pandemic in far better fiscal shape than anyone could have plausibly expected a year ago.