Tax refunds are up sharply in Virginia as the recession batters the balance sheets of upper-income residents, adding to an already staggering budget shortfall facing the state.
Virginia has doled out $220 million in tax refunds since the beginning of the fiscal year, a 26 percent increase from the same point last year and $45 million more than what was forecasted.
The glut of refunds is largely due to wealthier Virginians having overestimated their projected earnings before the economy began to plummet — thereby paying too much in estimated taxes — state financial officials said.
“These are people that probably have a considerable amount of loss, capital gains loss, and they’re taking those losses against their income,” said Robert Vaughn, staff director for the House Appropriations Committee.
Many of those upper-income earners had made estimated tax payments for 2008 based on what they earned in 2007, said Joel Davison, spokesman for the Virginia Department of Taxation. Those taxpayers, who had received 6-month extensions through Nov. 1, this year found out they had overpaid the state and were owed refunds.
The payouts mean Virginia is deeper in the red than previously thought. The increase in refunds is a major driver behind the current-year shortfall, which is as much as $300 million larger than expected. After lawmakers close that budget gap, they will still be faced with an estimated two-year deficit of as much as $2.7 billion through mid-2012.
The same economic slump that fueled the increase in tax refunds is behind the collapse of other Virginia tax revenues. Payroll taxes — the largest source of revenue — have plummeted as unemployment rises. While the state’s jobless rate of 6.6 percent is lower than all but a handful of states, the commonwealth still has shed more than 118,000 jobs since 2007.
Another key source of cash for the state, sales taxes, is also falling as consumers sharply curb their spending. The state’s sales tax collections fell a record 5.6 percent in fiscal 2009 over the previous year.
