Key Takeaways
- Every state that levies an income tax has adjusted the tax filing date.
- With 25 states receiving more than 50% of operating revenues from income taxes, any interruption could be meaningful.
- The full extent of lost revenues will not be known for months, but will be felt in state budgets for years.
Postponement of state April 15 income tax filing deadlines, announced by every state that imposes an income tax, creates a temporary deferral of revenue that for at least some states is likely to be near in magnitude to the separate amount of potential permanent tax loss caused by the pandemic related economic slowdown. Unfortunately, this will create additional problems for state liquidity, creating uncertainty and challenges in revising fiscal 2020 and 2021 revenue forecasts, as separating out temporary income tax deferrals compared to the permanent loss due to economic activity will be difficult.
Primarily derived from the calendar year 2019 tax filing period, fiscal 2020 income tax payments are not likely to change much, aside from the time of receipt. However, receipts in the three remaining months of most states' fiscal 2020 will not be immune to recessionary pressures, as the monthly wage withholding receipts will be reduced in the current fiscal year due to the sudden spike in unemployment induced by the social distancing measures throughout the economy. The full effect of the permanent loss of income tax revenue collections caused by the recession will not be known for months, but will primarily be reflected in fiscal 2021.
S&P Global Ratings believes states with low reserves, or those lacking access to substantial internally borrowable non-general fund cash resources, may need to make external liquidity financing arrangements to ensure adequate cash to take them through the new filing deadline. The Federal Reserve's recent announcement of a Municipal Liquidity Facility program to provide up to $500 billion in short term loans to states and certain local governments may assist in this effort.
According to the Tax Foundation, all states imposing an income tax have pushed their filing deadline to July 15, matching the revised federal deadline, or later, except for Mississippi, Idaho, and Virginia (see table). April is traditionally the monthly cash flow high point for most states. Both personal income tax as well as corporate income tax collections are significant revenue sources for states. In 25 states, these taxes make up over 50% of the operating revenue, and represent over 75% of operating revenue in five of those states.
Recent monthly tax collections have been no help in determining the magnitude of the problem. Due to the delay in collection of tax receipts, and the fact that economic activity did not really start to slow down until mid-March, many states have reported an increase or a small decline in March tax collections, although we expect April to show large declines. California, an income tax-dependent state, recorded income tax ahead of the comparable 2019 period through April 9, according to its controller. The amount of income tax revenue deferred due to the shift in the filing deadline may not be better understood for most states until the first or second week of May.
In many cases, states themselves are still figuring out their revised fiscal 2020 and 2021 revenue forecasts. March cash receipts largely do not yet show the effect of the pandemic slowdown, since tax collections are remitted with a time lag, and the economic effect of coronavirus restrictions didn't begin to take effect until mid-March. Iowa, for example, a state somewhat removed from the epicenter, showed an increase in its March 2020 revenues over March 2019, while Massachusetts showed revenues up 3.2% against its baseline forecast. We continue to monitor the monthly receipts, where available, but in general, lower rated states may have greater liquidity pressures, as they may have lower reserves and have to pay more to access external liquidity. The full extent of lost revenues will not be known for months, but will be felt in state budgets for years.
| State Tax Filing Deadlines And Reliance On Personal Income Tax | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| % of budgeted FY2020 operating tax revenue from | ||||||||||||||
| Rating | Outlook | New tax filing date* | Personal income tax** | Corporate tax** | Notes | |||||||||
| Alabama | AA | Stable | July 15 | 43 | 5 | |||||||||
| Alaska | AA | Stable | N/A | 0 | 6 | Corporate income only; no change in corporate filing date | ||||||||
| Arizona | AA | Stable | July 15 | 45 | 4 | |||||||||
| Arkansas | AA | Stable | July 15 | 52 | 6 | |||||||||
| California | AA- | Stable | July 15 | 70 | 9 | |||||||||
| Colorado | AA | Stable | July 15 | 65 | 7 | Payments July 15, but filing extension to Oct. 15 | ||||||||
| Connecticut | A | Stable | July 15 | 50 | 6 | |||||||||
| Delaware | AAA | Stable | July 15 | 32 | 2 | |||||||||
| Florida | AAA | Stable | N/A | 0 | 7 | Corporate income only | ||||||||
| Georgia | AAA | Stable | July 15 | 49 | 5 | |||||||||
| Hawaii | AA+ | Stable | July 20 | 32 | 2 | |||||||||
| Idaho | AA+ | Stable | June 15 | 49 | 6 | |||||||||
| Illinois | BBB- | Negative | July 15 | 49 | 6 | |||||||||
| Indiana | AAA | Stable | July 15 | 37 | 5 | |||||||||
| Iowa | AAA | Stable | July 31 | 61 | 8 | |||||||||
| Kansas | AA- | Stable | July 15 | 45 | 5 | |||||||||
| Kentucky | A | Stable | July 15 | 40 | 5 | |||||||||
| Louisiana | AA- | Stable | July 15 | 20 | 2 | |||||||||
| Maine | AA | Stable | July 15 | 45 | 5 | |||||||||
| Maryland | AAA | Stable | July 15 | 56 | 5 | |||||||||
| Massachusetts | AA | Stable | July 15 | 58 | 4 | |||||||||
| Michigan | AA | Stable | July 15 | 38 | 2 | |||||||||
| Minnesota | AAA | Stable | July 15 | 53 | 7 | |||||||||
| Mississippi | AA | Stable | May 15 | 33 | 9 | |||||||||
| Missouri | AAA | Stable | July 15 | 70 | 5 | |||||||||
| Montana | AA | Stable | July 15 | 57 | 6 | |||||||||
| Nebraska | AAA | Stable | July 15 | 57 | 7 | |||||||||
| Nevada | AA+ | Stable | N/A | 0 | 21 | No corporate or personal income tax; commerce tax shown | ||||||||
| New Hampshire | AA | Stable | June 15 | 0 | 29 | Corporate income and personal interest and dividend only | ||||||||
| New Jersey | A- | Stable | July 15 | 43 | 9 | |||||||||
| New Mexico | AA | Stable | July 15 | 20 | 1 | |||||||||
| New York | AA+ | Stable | July 15 | 52 | 4 | |||||||||
| North Carolina | AAA | Stable | July 15 | 51 | 3 | |||||||||
| North Dakota | AA+ | Stable | July 15 | 16 | 3 | |||||||||
| Ohio | AA+ | Stable | July 15 | 26 | 5 | |||||||||
| Oklahoma | AA | Stable | July 15 | 39 | 3 | |||||||||
| Oregon | AA+ | Stable | July 15 | 79 | 0 | |||||||||
| Pennsylvania | A+ | Stable | July 15 | 42 | 10 | |||||||||
| Rhode Island | AA | Stable | July 15 | 34 | 11 | |||||||||
| South Carolina | AA+ | Stable | July 15 | 50 | 4 | |||||||||
| South Dakota | AAA | Stable | N/A | 0 | 0 | No corporate or personal income | ||||||||
| Tennessee | AAA | Stable | July 15 | 0 | 16 | Corporate income and personal interest and dividend only | ||||||||
| Texas | AAA | Stable | N/A | 0 | 6 | |||||||||
| Utah | AAA | Stable | July 15 | 55 | 0 | |||||||||
| Vermont | AA+ | Stable | July 15 | 25 | 3 | |||||||||
| Virginia | AAA | Stable | June 1 | 71 | 5 | Filing due April 15, payment due July 15 | ||||||||
| Washington | AA+ | Stable | N/A | 0 | - | |||||||||
| West Virginia | AA- | Stable | July 15 | 46 | 3 | |||||||||
| Wisconsin | AA | Stable | July 15 | 48 | 7 | |||||||||
| Wyoming | AA+ | Stable | N/A | 0 | 0 | |||||||||
| N/A- not applicable. *Source: Tax Foundation (as of April 9) and subsequent news reports. **Source: S&P Global Ratings survey. | ||||||||||||||
This report does not constitute a rating action.
| Primary Credit Analyst: | David G Hitchcock, New York (1) 212-438-2022; david.hitchcock@spglobal.com |
| Secondary Contact: | Geoffrey E Buswick, Boston (1) 617-530-8311; geoffrey.buswick@spglobal.com |
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