UPDATE: Indiana’s April revenue nearly $1B below budget projections

Revenue for the state of Indiana came in almost $1 billion lower than expected in April, with a significant decrease in individual income taxes accounting for the largest portion of the discrepancy.

The April revenue report, released Friday afternoon, showed individual income tax collections were nearly $669 million lower than projections, missing the mark by about 58%. Income taxes make up the second largest revenue stream for the state, accounting for nearly 40% of state tax collections.

Cris Johnston, director of the Office of Management and Budget, said his office is working with the State Budget Committee to produce an updated revenue forecast this summer, and state agencies are being asked to identify potential spending cuts.

“Needless to say, the remainder of the fiscal year will be challenging,” Johnston said Friday afternoon.

In addition to record-high numbers of individuals filing for unemployment, the decision to delay the income tax filing deadline from April 15 to July 15 is causing the lower-than-expected collections.

Other revenue sources also were lower than expected in April. Sales taxes, which represent nearly 50% of state tax collections, were $103.3 million below the monthly projection. Corporate taxes were $135 million below projections, and other taxes were $8.3 million below monthly expectations.

The state received zero income from gambling taxes because the state’s riverboat casinos and horse-track racing casinos have been closed since mid-March. Projections showed the state should have collected nearly $48 million from casinos in April.

Overall, tax revenue was 44% lower than predicted. The state estimated it would collect nearly $2.2 billion in revenue in April this year, but it only received $1.23 billion, for a difference of $964 million.

In March, after revenue was 6% lower than expected, the state budget still managed to be slightly ahead of estimates for the year. But now, the budget is about 7% below estimates for the year.

Year-to-date, the state expected to have collected $13.57 billion by now, but has only collected $12.6 billion.

All of the estimates are based on the budget forecast from December.

State budget officials had expected the April monthly revenue report to be worse than March and to start to show the fiscal impact from the coronavirus pandemic. May and June reports are also expected to show lower revenue than anticipated.

“Going into May and June, significant fluctuations are expected and deviations from monthly estimates are likely as the rapidly changing economic outlook will most likely impact monthly collections,” the monthly report says. “Additional uncertainty will persist over the coming months, particularly with individual income tax and corporate taxes, with the alignment of Indiana’s tax filing and payment due date with the federal deferral to July 15.”

Even though sales taxes missed their mark for the past two months, year-to-date, they are less than 1% below projections.

Part of that might be due to a loophole in online sales and hotel tax collections that state lawmakers worked to close last year. The law requires so-called “marketplace facilitators” that sell goods or services online on behalf of other entities to collect and remit sales tax to the state.

Indiana passed a law in 2017 that required online retailers with sales of at least $100,000 or more than 200 customers in the state to collect and remit the state’s 7% sales tax, but that law did not address marketplace facilitators such as Amazon or Expedia.

The legislation also required short-term rentals, such as those on platforms like Airbnb or VRBO, to collect sales and innkeeper’s taxes.

“While it is difficult to identify the specific impact of the state enforcement of the recent changes in the taxation of remote sales on the fiscal year-to-date tax collections, some data on revenue collections attributable to compliance from marketplace facilitators may suggest an uptick in April,” the report said.