Contrary to what you may have heard, the sky is not falling in California—at least not as it pertains to sales tax revenue. I’m pleased to report that sales and use tax revenues are doing just fine.
On August 13, the State Controller reported that sales and use tax general fund revenues for the month of July were down $295 million, 33.5% below expectations.
However, BOE actually received $1.527 billion in July, $17 million more than the Department of Finance budget projection.
The competing revenue numbers are the result of payment timing combined with differing accounting methods. As required by statute, the Controller looks at “money in the bank,” which does not include pending deposits. BOE numbers, as well as those used for state budget estimates, reflect “money in the door,” which includes all payments—including those received but not yet deposited.
BOE received more than $900 million in sales tax revenue in the final days of July. These dollars were not included in the Controller’s report because they had not yet been deposited into state coffers.
Retail sales tax receipts are critical in July, as both annual payments by smaller businesses, as well as monthly and quarterly payments from larger businesses are due July 31.
The sky is not falling and revenues are not dropping precipitously. Although some might want you to think that the State of California is running out of money and in need of a big tax hike to increase revenues, it’s not.