Could Tax Accountants Have Caused California’s Revenue Surge?

California budget officials couldn’t figure out where the extra $5 billion in tax revenue came from in January. As this Los Angeles Times article asks, was this an accounting anomaly? Governor Jerry Brown’s administration now believes it was a timing issue.

Many businesses increased dividend payouts and other income into last year because of federal (and California) tax hikes. Many individuals (at the urging of tax accountants like me) make their fourth quarter estimated tax payment at the end of December rather than in mid-January to lower their tax bill; state income tax paid is deductible on federal income tax. The same is true for corporations (state income tax they pay is deductible on federal income tax).

While I do believe that some of the income isn’t timing related–Californians didn’t have time to make changes to their spending habits due to the late (in the year) passage of California’s tax hike–most likely much of it is just tax revenue coming in early. And there’s still the $500 million judgment in the Gilbert Hyatt case; that decision by the Nevada Supreme Court could come at any time.


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