Revenue Secretary Hardy: West Virginia tax surplus inching closer to $1.7 billion

According to Hardy, the year-to-date tax revenue surplus for Fiscal Year 2023, which ends June 30, was $1.617 billion as of Friday. West Virginia ended the month of April with $1.585 billion in excess tax revenue, with just two months to go in the current fiscal year.

“Everything is pretty much heading on target,” Hardy said.

“We started saying last fall we would have a $1.7 billion surplus. ... I was skeptical, but as of this morning, the surplus number as of May 5, last Friday, is $1.617 billion,” Hardy said.

West Virginia collected $5.427 billion in tax revenue in the first 10 months of the fiscal year as of the end of April, which was 41.3% more than the $3.842 billion estimate from the Department of Revenue.

April’s personal income tax filing deadline drove much of the tax revenue collections last month, with April tax revenue coming in at $825.9 million, or 62.9% more than the $506.9 million estimate, resulting in $319 million in surplus tax revenue for the month and breaking records for the largest monthly tax collection in state history.

Personal income tax revenue for April was $472.6 million, 68.9% more than the $279.8 million revenue estimate, resulting in a $192.8 million surplus for the month.

Year-to-date personal income tax revenue of $2.278 billion was 23.9% more than the $1.838 million revenue estimate for a $439.5 million surplus. Hardy said personal income tax collections at the end of April were up 9% over collections this same time 12 months ago.

Hardy told lawmakers Department of Revenue officials are still watching for the effects of the 21.25% across-the-board personal income tax cut that went into effect in March following the passage of House Bill 2526.

According to estimates, the personal income tax cut — which is retroactive to Jan. 1 — will return approximately $590 million to taxpayers. Hardy said most of the tax cut’s effects will be seen in Fiscal Year 2024 beginning July 1.

“When you turn the state’s finances, it’s like turning an aircraft carrier. It goes real slow,” Hardy said. “Right now, we are watching and monitoring the effect of the lower income tax rates. We see that effect through the new withholding tables and through the fact that people are starting and will be adjusting their estimated income tax payments.”

Mark Muchow, deputy secretary of the Department of Revenue, said an updated tax revenue estimate for Fiscal Year 2024 will come out later in the summer, reflecting the changes to personal income tax collections.

Normally meant to estimate actual tax revenue, the estimates the last several years have been tied to previous general revenue budgets that have been kept relatively flat.

“The official estimates set by the governor in the last couple of years have been based on the budget, not on actual revenue performance,” Muchow said. “Sometime between now and July 1 we should be getting an advised official estimate for fiscal year 2024 to reflect changes, but the bottom line will stay the same ... but we will reconfigure the numbers a bit. The income tax estimates will go down a bit, but the sales tax will go up. There will be other changes in the mix for the next fiscal year.”

As a result, official revenue estimates are kept low while state revenue officials expect actual revenues to come in far higher than the estimates, creating the illusion of tax revenue surpluses. For example, the Legislature passed a bill in March setting the general revenue budget for fiscal year 2024 at $4.875 billion. But according to Department of Revenue projections released in January, officials expect the state to end fiscal year 2024 with $6.1 billion in general revenue collections for a $1.2 billion surplus.

Hardy said overall tax revenue is up more than 14% over this same time 12 months ago and interest income from short-term savings from various state accounts has brought in an additional $100 million this fiscal year compared to last year when the state took a loss.

“That’s not debating anything other than just math,” Hardy said. “Due to a lot of things that occurred in the bond market, this year interest income is up more than $100 million. That is the effect of markets coming back, the federal government raising interest rates. We’re seeing a lot more revenue on our short-term money.”