Tennessee Tax Revenue Collections Tops $2B In April, Continues At Record Pace

Photo: Tennessee Governor Bill Lee

Photo Credit: Gov. Bill Lee / Facebook

Published May 17, 2021

By Jon Styf [The Center Square contributor] –

Tennessee has collected $2 billion more in revenue than its budgeted estimate for the first nine months of the fiscal year, according to April numbers released Friday by the Tennessee Department of Finance and Administration.

The state collected $2.5 billion in revenue during the month, $1.3 billion more than in April 2020 and nearly $600 million more than the budgeted estimate.

“It’s important to remember that March and April of 2020 were the only two months where the state experienced a negative growth rate for collections during the pandemic, so in an effort to make realistic analysis, we’ve looked at collections for April 2019,” Department of Finance and Administration Commissioner Butch Eley said in a statement. “When we compare April of this year to 2020, the growth is 90.90 percent but compared to April 2019, the April growth rate for all taxes is 15.01 percent.

“Sales tax collections continue to reflect strong consumer activity and increased inflationary pressures that are beginning to appear in the cost of goods sold, as reflected in the latest [Consumer Price Index] report,” Eley said.

Tennessee is on a record pace in terms of comparing revenue collected with what was estimated, according to an analysis from Mandy Pellegrin, policy director at the nonpartisan public policy research center Sycamore Institute. 

The previous end-of-fiscal-year high was last year, when revenues came in $1.24 billion better than budget.

Those overages will sit in the state’s funds until the money either is moved to the rainy day fund or appropriated to state’s programs by the Tennessee Legislature because of the state’s constitutional balanced budget process.

“It happens every year where we have collected more,” Pellegrin said. “For the most part, the state has been fairly conservative. They would rather be under than over.”

As for what the numbers means, it’s important to remember more than half of the state’s tax revenue comes from sales tax because there is no state income tax.

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Tax collection can be a good economic indicator, Pellegrin said, but this fiscal year has been unique with the federal government sending out stimulus checks and supplemental unemployment benefits while states received COVID-19 federal relief.

“Many are conservative and cautious about (the numbers) because a lot of this spending has been on durable goods, like a kayak or a car or home improvement items,” Pellegrin said. “That could indicate it’s one-time spending unlike the base parts of sales tax like food, drinking and restaurants. These numbers are heavy on durable goods.”

With the COVID-19 pandemic’s impact on fiscal year 2020 and the changing of tax filing dates, other data could be hard to compare year over year, Eley said.

““Prior year month-to-month tax receipt comparisons for this month and the remainder of the year will appear distorted as periods of economic stoppage from the pandemic and the movement of multiple tax filing dates affect reported growth rates,” he said.

The state’s corporate tax collections were far above budget, Eley said, indicating local companies experienced earning growth despite tough circumstances.

All of those factors have made it more difficult than normal to estimate tax revenue.

“It would be impossible to get it right,” Pellegrin said. “But this is a particularly big (gap between real and estimated numbers).”