State government has a little extra money in its coffers after posting a nearly $590 million surplus for the fiscal year that ended in June.
The state’s top tax collector, however, is urging continued frugality, citing a volatile swing in capital gains taxes that outperformed estimates.
“The good news is we’ve managed to outperform our modest estimates, but that doesn’t mean the state’s economy is out of the woods yet,” said Comptroller Peter Franchot. “Consumers are still cautious about spending their discretionary dollars, and continued political volatility in Washington is likely to persist. I urge our state’s leaders to regard this year-end boost like an unexpected bonus to be saved for future use, not to be spent immediately.”
Nearly $86 million of the anticipated surplus was earmarked for the current budget year that started July 1, leaving more than $503 million in unassigned funds.
The end-of-year numbers represent a $339 million or 2 percent increase over estimated revenue. Most of the windfall is driven by more than $218 million in capital gains revenue.
“Capital gains tax realizations are volatile and often short term in nature. Historically, the market has fluctuated significantly with business cycles, and more importantly, to a much greater degree than any other aspect of the economy,” wrote Sandra Zinck, director of the comptroller’s general accounting division. “While market fundamentals and the prospect for still unrealized gains remain strong, surely in the future there will be an unpredictable correction that will reverse these good fortunes.”
As a result of historic volatility, which has rankled lawmakers, the Board of Revenue Estimates now assumes no annual capital gains in its revenue estimates.
Sales taxes continue to vex the state and grew at a sluggish 2.3 percent.
A recent Supreme Court decision clearing the way for states to charge sales tax to online retailers who do not maintain a physical presence in a particular state has not yet had an effect on sales tax collections.
The comptroller earlier this month proposed new regulations that would impose a 6 percent sales tax on online retailers who either have a minimum of 200 transactions in Maryland or sales on taxable goods and services in the state that exceed $100,000 annually.
The regulations, which could go into effect as soon as Oct. 1, are similar to a South Dakota law upheld earlier this year by the nation’s highest court.
Officials estimate as much as $100 million in additional sales tax collections annually.
But the report on the close of fiscal 2018 noted that digital goods — downloads and streaming of movies and music — continue in popularity but remain untaxed.