Still struggling to recover from months of lower-than-expected state tax collections, the state fell $40 million short in revenues last month.
Finance and Administration Commissioner Larry Martin blamed May’s drop on a legal change in the timing of business tax payments and on the payment of a large sales tax settlement.
“Tennessee’s sales tax collections continue to reflect a slow recovery from the recession, and require us to closely monitor collections and expenditures for the remainder of this year to end with a balanced budget,” Martin said in a department press release.
With two months left in the state’s budget year, Tennessee is $222 million in the hole this fiscal year, the department reported Wednesday. The projected drop led Gov. Bill Haslam and lawmakers to cut more than $300 million from this and next year’s state spending plans this spring to fill the gap, causing him to eliminate plans to offer teachers raises and give new money to higher education, among other cuts.
Officials had blamed much of the year-long problem on an unexpected drop in business tax collections, of which the department is expected to study. Haslam has also pointed to a weak holiday shopping season, a cold winter weather and the prevalence of online shopping for the slow tax growth.
In May, sales tax collections were $10.5 million less than the state budgeted, but nearly 1 percent higher than last year’s May revenues. The department reports that sales taxes — the bread and butter of the state’s revenue — were 3.36 percent above last year’s collections year to date, but fell below budget by $29 million.
Businesses taxes were $2.2 million below the $48.7 million the state was expecting last month. Year to date, the franchise and excise taxes combined have come in $224 million less than expected, according to the department.
May collections reflect business activity that occurred in April.