State revenues climb 2.8% in August, remain ahead of forecast

Virginia’s general fund revenues rose by $58 million in August compared with the same month last year, keeping collections slightly ahead of the state’s forecast despite signs of weakness in Virginia’s labor market. 

Collections increased 2.8% for the month and totaled nearly $4.61 billion during the first two months of fiscal 2027, according to the August revenue report released by Gov. Abigail Spanberger’s administration on Friday. 

Through Aug. 31, revenues were up 5.4%, or $236.5 million, from the same period last year and were running 1.8%, or $81.5 million, ahead of the official forecast. 

“Revenue remains generally in line with our forecast through the first two months of the fiscal year, though continued national economic uncertainty means we must stay vigilant,” Spanberger said in a statement. 

“With high costs driven by the president’s reckless war and an uncertain labor market remaining areas of concern nationwide, particularly given persistently high inflation, we will continue to responsibly manage the commonwealth’s finances.”

Sales and use taxes provided much of the early growth. Collections increased 4% in August from a year earlier and were up 9.1%, or $77.3 million, for the fiscal year to date. That put sales tax revenue 5.6%, or $49.2 million, ahead of projections. August collections reflect sales made in July. 

Individual income taxes, which account for about 70% of general fund revenue, showed a different picture. Net collections fell 1.2%, or $18.8 million, in August. They remained up 2.1% for the fiscal year but were $22.4 million below projections.

Payroll withholding taxes declined 1.9%, or $27.9 million, compared with last August and came in $37.3 million below the monthly forecast. Through August, however, withholding collections were up 2.3% from the same period last year and only $9.6 million below projections. 

“August is a light month for revenue collections, with no major quarterly deadlines affecting sources like nonwithholding or corporate income tax,” Secretary of Finance Mark Sickles said. 

“Withholding collections came in $37.3 million below forecast for the month, though that is well within the normal range of monthly variance for that source. Sales and use tax collections continued to outperform, growing 4% for the month. We are concerned by persistently high core inflation and the resulting increased likelihood of a Federal Reserve rate hike.”

The report noted that monthly withholding collections typically vary from the forecast by $70 million to $90 million. 

Nonwithholding income tax collections, which include estimated and final payments, rose 17.2%, or $19.9 million, in August. They were up 7.4% for the year and running $11.2 million ahead of the forecast. August is not typically a significant month for those payments. 

Virginia also issued $92.6 million in individual income tax refunds during August, up from $81.8 million a year earlier. Refunds totaled $204.4 million through the first two months of the fiscal year, an increase of 12.4%. 

Corporate income tax collections totalled $7.2 million for the month and were $35.2 million ahead of projections for the fiscal year to date. 

The $114.8 million year-over-year increase largely reflects an accounting adjustment that recategorized some corporate revenue in August 2025, producing an unusually negative total that month.  

 Recordation taxes and related collections increased 4.1%, or $1.7 million, in August and were up by 8.4% for the fiscal year. Despite that growth, collections remained $6.6 million below the forecast.

The revenue projections came against a mixed economic backdrop. The nation added 162,000 jobs in August while the unemployment rate held at 4.1%. Virginia’s unemployment rate dipped from 3.8% to 3.7% in July, the latest month for which state figures were available.

The state’s labor market showed more signs of strain. 

Virginia lost 9,600 jobs in July, and the state’s June employment estimate was revised downward by another 1,900 jobs. Labor force participation slipped to 63%, continuing what the report described as a sustained multiyear low. 

U.S. gross domestic product grew at an annualized rate of 1.5% during the second quarter, according to the report. Oil prices remained elevated, while the Federal Reserve’s preferred measures of underlying inflation were unchanged in July. 

Virginia’s official forecast calls for general fund revenue to reach nearly $34.7 billion during fiscal 2027, an increase of 4.1% from the previous year.