State tax collections up 23 percent in May

By LARRY O'DELL
Associated Press Writer
Thursday, June 16, 2005

RICHMOND, Va. - State tax collections have increased by 15.2 percent so far this year, well ahead of the official forecast of 10.3 percent for the fiscal year that ends June 30, the Senate Finance Committee was told Thursday.

State Secretary of Finance John M. Bennett said revenue grew 23 percent in May. He cautioned that such growth is not sustainable because it came mostly from three volatile sources: taxes paid by corporations, investors and the self-employed, and on real estate transactions.

However, the state's two largest revenue sources _ individual income tax withholding and the sales tax _ also showed robust growth in May. Payroll withholding taxes grew 9.8 percent and sales taxes 16.2 percent.

Even without last year's $1.4 billion tax increase, revenue would have been up 19.2 percent last month, Bennett said.

Some Republican legislators who opposed the tax increase have been arguing for months that the rosy revenue numbers prove they were right. Democrats and some centrist Republicans who joined forces to pass the increase say the additional revenue will be needed to meet state commitments in education, health care and other services.

"The tax policy changes were a marginal contributor to what you're seeing now," Bennett told the committee. "I know there's going to be a lot of second-guessing. That just goes with the territory."

The tax increase was enacted for long-term benefit, he said, and any retreat would risk putting the state in a bind when the state and national economies inevitably cool down.

For the short term, however, the state remains on target for a year-end surplus that could exceed $1 billion.