Missouri’s tax collections are starting to rebound after the state began the first two months of the current fiscal year with a $100 million shortfall.

The figure has been reduced to roughly $70 million thanks largely to a 2.3 percent increase in revenue collections in the past month over September 2017.  Overall revenues are still down by 3.2 percent for the year, which would typically lead to a cut in state services according to Missouri Budget Director Dan Haug.  “Normally if we were down by 3.2 percent according to the fiscal year we’d be restricting, but right now don’t feel like we need that,” said Haug.

There are a couple of reasons why Haug thinks budget restrictions aren’t necessary.

First, revenues in the previous fiscal year which ended in June were up by a healthy 5 percent, a big increase over the projected growth rate of 1.9 percent.  As a result, the state has a $280 million surplus that’ll provide a cushion if revenue collections fall off further this year.

Second, revenues grew so much in the previous year that they exceeded what’s been projected for this year which, according to Haug, means revenue collections can decrease by a half a percentage point for the year and there would still be enough money to fully fund the state budget.  In addition, Haug said collections from businesses and individuals who filed their taxes quarterly provided a boost in September’s revenues.

Meanwhile, the state Department of Revenue announced that it’s reworking the tax tables after determining it’s been under collecting income taxes from individuals.

The agency recently sent out a late Friday afternoon email announcement indicating that the state is withholding a smaller amount than is required.

It said the unexpected decrease in withholding is due to a longstanding inaccurate calculation of the federal tax deduction that had previously gone undetected.  Federal taxes paid can be deducted on Missouri income taxes up to $5,000 for individuals and $10,000 for couples.

Also, Department of Revenue Director Joel Walters indicated that the under collection of state income taxes is tied to the tax overhaul Congress passed in late 2017.

“Any time changes are made at the federal level, states can expect there will be a need to make some adjustments,” said Walters. “Updating the state’s tax tables is necessary to ensure enough money is being withheld to protect taxpayers from owing more or receiving less back than they are expecting when they file their tax returns in the spring.”

Budget Director Haug added that the Missouri income tax is based on federal adjusted gross income and that changes made on the federal level impact what the state collects.  Adjusted gross income is an individual’s total gross income minus specific deductions such as student loan interest and certain contributions to IRA accounts.

Haug further pointed out that Missouri collections were affected by Congressional tax overhaul which nearly doubled the standard deduction.  The state’s standard deduction is the same as the federal deduction, which means for individuals it rose from $6,350 to $12,000 in 2018 while it increased from $12,700 to $24,000 for those filing jointly.  Tax filers have the option of claiming the standard deduction or itemizing their deductions.

The Revenue Department’s reworking of the tax tables will correct the problem of under collections but making the adjustments midyear means taxpayers could owe more money at the end of the year.

Democratic State Representative Deb Lavender of Kirkwood is concerned residents could be hit with unexpected tax bills.  “If we’re talking about $10 or $15 that might have been underheld, I’m worried that people might have tax bills of $200 or more that they’re not going to expect that they owe,” said Lavender.

In its release, the Revenue Department confirmed that some Missouri taxpayers are under-withholding for the 2018 tax period, meaning they may see a smaller refund or a greater balance owed than they had seen in previous years.

Lavender says the state’s to blame for the under withholding of income taxes and the hardship it could cause for taxpayers.  “I think it was a gross error on the Department of Revenue to not adequately double check their figures, for Missourians to be able to rely on them giving them accurate information,” Lavender said.

It’s not known if the under collection of income taxes contributed to the revenue shortfall that’s currently being experienced by the state.