TOPEKA — Kansas tax collections came in ahead of expectations in the first month of a retroactive tax increase that could take months to produce expected revenue, the Kansas Department of Revenue announced Tuesday.
According to a news release issued Tuesday afternoon by the department, the state collected an extra $28.4 million last month than it did in July 2016 and $7.6 million more than projections estimated. The state received more than $188.5 million in individual income taxes in July. That was more than $3 million more than forecasts predicted and $22.4 million more than the state collected in July 2016. Income tax collections from corporate businesses and financial institutions also came in ahead of estimates.
The receipts came after a tax package passed in June by the Legislature went into effect July 1 with the start of the fiscal year, but several officials said they did not expect to understand the full revenue impact of the rate increases yet. In the news release, Revenue Secretary Sam Williams said the department expected to have a better understanding of the effects of the tax increase in the next coming months.
“The new tax law brings so many ramifications that it’s difficult to separate economic trends from the tax increase,” Williams said.
Heidi Holliday, executive director of the Kansas Center for Economic Growth, said one month of data would not show the full impact of the tax plan.
“I think it’s going to be June 30 of next year before we totally feel the impact,” Holliday said.
The new tax law is expected to bring in another $1.2 billion in the next two fiscal years, but Holliday said monthly revenues likely will be volatile as individuals, employers and businesses adjust to the new rates. The law is retroactive to Jan. 1, 2017, so those who worked the first half of the year have had too little money taken out of their paychecks to comply for the year overall.
The Department of Revenue created new withholding tables for companies that dictate how much money should be taken out of employees’ paychecks in order to catch up to the new rates in the tax increase, but it’s up to employers to implement the new rates. Businesses also might owe money when they file returns in April if they don’t pay enough to catch up on taxes they now owe from the first half of the year. Kansas House tax committee chair Rep. Steven Johnson, R-Assaria, said he thought many businesses would hold onto its cash for now.
“Some individuals may unintentionally and be shocked when they actually get a tax bill in April, and that part is regrettable,” Johnson said.
Retail sales tax collections were $8.3 million higher last month than in July 2016, and those taxes came in $5.5 million ahead of estimates.
Holliday said it might take some time before revenue numbers are again a reliable indicator of how the tax plan is affecting revenues.
Sen. Tom Holland, ranking Democrat on the Senate tax committee, said he expected the new tax policy to come with a “shake-out period” while revenues stabilize.
“It’s going to be a long road to dig out,” Holland said.