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Income taxes reduce revenue gap

CHARLESTON, W.Va. -- A jump in income tax collections, along with a hiring freeze and spending cuts, is helping the state to close its budget gap.

The gap, which stood at $49 million at the end of March, now is about $13.9 million. That's the difference in predicted and actual revenues since the state budget year began last July 1.

Increases in income tax collections were the main driver, said Mark Muchow, deputy revenue secretary. The state collected $318.9 million in income taxes through the end of April, about $57.3 million more than expected.

The U.S. Congress can be thanked for the one-time surge. Federal lawmakers spent the end of last year trying to come up with a solution to the so-called "fiscal cliff," and many were worried Congress would allow Bush-era tax cuts to expire.

That scared lots of businesses and investors into speeding up some long-term investments, selling off assets, paying bonuses and even shifting payroll schedules to fall under the 2012 tax schedule.

"Because of that we ran a surplus in April collections. The surplus greatly eliminated most of our deficit," Muchow said.

The state also is using funds from its income tax reserve to shore up its budget.

The state used $18.57 million from the reserve account to pay tax refunds, Muchow said.

Tax refunds usually are paid from the state's general revenue account. But the reserve account, which now contains about $27 million, allows the state to pay tax refunds without touching its general revenue account.

A temporary hiring freeze, initiated by Gov. Earl Ray Tomblin in March, as well as spending cuts by the Legislature, also will save the state $28 million by the end of the fiscal year on June 30, Muchow said.

The state has collected $3.42 billion in taxes year to date. That includes $545 million collected last month, or $34 million above estimates and $55 million above April 2012.

But while income tax collections far exceeded predictions, other major revenue streams came up short.

The state collected $42.5 million in severance taxes last month, $2.5 million less than expected. Sales tax revenue was $100.7 million in April, $2.7 million less than estimates.

With income tax season over, Muchow said he expects tax collections to fall short of estimates in May and June. However, he still expects the budget gap to disappear completely before July.

"We can afford to be another $15 million short for May and June and still be OK," he said. "We'll close the gap."

Contact writer Zack Harold at 304-348-7939 or Follow him at

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