Rockefeller Report Sees Improvement in State Tax Revenue

State tax revenues are slowly climbing out of recession levels, the Nelson A. Rockefeller Institute of Government concluded in a report released Monday.

The latest quarter showed a slight improvement in overall state tax collections, personal income tax, and sales tax collections, based on data gathered from 47 states.

Total state tax revenues in the second quarter were just over 2% higher than those during the same period last year. It was the second consecutive quarter of revenue growth at the state level, ending a period of record-breaking declines during 2009, according to the report.

But the slight upturn belied what the report called an overall fiscal 2010 trend that is "very much in the negative" for most states. Early figures for fiscal 2010 indicate that 34 of 44 states sustained drops in overall tax revenue for the fiscal year. Collections were higher, but still were 17.2% below the peak revenue levels that states enjoyed before the recession. Uncertainty surrounding state tax revenues will continue to be problematic, causing more budget challenges, said Lucy Dadayan, a senior policy analyst who co-authored the report.

Gains were not uniform across all states; overall collections fell in 17 states. Declines in oil and gas production taxes hurt the coffers of Wyoming and Louisiana, which reported drops of 28.2% and 22.1% in overall revenue, respectively. Those two states struggled with declines in other tax revenue as well.

Florida's total tax collections grew by the most, with state revenues expanding 13.6% or $766 million in the second quarter, the institute found. Personal income helped with the bump in revenues.

Those taxes were up by 1.6% for the nation, though 26 states reported declines in the category. Louisiana fell behind other states, reporting a 34.7% drop in income tax revenues over last spring.

California reported an 11.5% increase in that category, amounting to about $1.6 billion more revenue from personal income taxes over last year.

The analysts found that if California was removed from the sample, personal income tax collections would show a 1.1% decline nationally.

The effects of personal income on state tax revenues was pronounced between April and June. Personal income taxes were the source of about 41% of total tax revenue reported by states during that time.

Sales taxes grew by 5.9% nationally, falling in only seven states. Wyoming lost more sales tax revenue than any other state, with a decline of more than 35% during the second quarter. The Rocky Mountain region was the worst hit by drops in sales tax and overall tax collections. Meanwhile, California, Massachusetts, North Carolina, North Dakota, and Virginia — states in almost every other region — reported double-digit sales tax gains.

Corporate income taxes were particularly inconsistent in the second quarter. That was in part because of volatile corporate income and timing of tax payments, analysts said.

For every state that reported double-digit gains in corporate income taxes this spring, there were almost as many that reported double-digit losses. However, nearly half of states reported some growth in corporate income tax collections.

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