Municipalities Took in $318B in 2Q Taxes, Up 1.7%

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State and local government tax receipts grew modestly in the second quarter of 2010 as an acceleration in consumer spending boosted sales tax revenue.

Municipalities in the U.S. collected $318.15 billion in taxes in the second quarter, according to the Census Bureau, a 1.7% increase from the second quarter last year.

State and local governments derive about half their roughly $2.7 trillion in total annual revenue from taxes. States collect around 55% of annual municipal tax revenues, while local governments collect the rest.

Most of the increase in the latest quarter stemmed from sales taxes, especially for states.

Sales taxes generally contribute about a quarter of municipal tax revenues.

Municipalities in the second quarter reported $76.6 billion in sales tax revenue, a 5% jump from the second quarter last year. That figure does not include taxes on sales of cars, tobacco, and alcohol.

States are particularly reliant on sales tax revenue. More than 40% of state tax revenue comes from some form of sales tax.

Retail sales have resuscitated somewhat. According to the Commerce Department, retailers reported $1.09 trillion in sales in the second quarter, which is the most robust period since the third quarter of 2008.

Virginia, North Carolina, and Arizona reported the biggest increases in sales tax collections.

The Great Recession, which according to the National Bureau of Economic Research officially ended in June 2009, exerted a brutal impact on municipal sales taxes.

Along with income taxes, sales taxes were a major culprit in the 4.1% plunge in municipal tax revenues last year.

Municipal sales tax receipts slipped 7.9% in 2009. This was by far the worst year for any 12-month period since the Census Bureau started tracking local government tax data in 1962. Sales tax receipts fell 11.1% in the second quarter of 2009 — easily the worst quarter on record.

Until the latest recession, in fact, declines of any kind were rare. Other than a marginal decrease in sales tax revenue in the 1991 recession, sales taxes grew each quarter year-over-year from 1962 to 2009.

The rebound in sales tax revenue in the second quarter compensated for lackluster receipts in the other category most important to states: income taxes.

Personal income taxes for state and local governments were flat at $75.9 billion during the quarter, even though personal income grew about 2.2% since the second quarter last year, according to the Bureau of Economic Analysis.

Corporate income-tax receipts ­plummeted 18.3% to $13.52 billion, despite corporate profits skyrocketing 39.2% from the second quarter a year ago, according to the BEA. Corporations typically gain tax credits during unprofitable periods, offsetting future taxable income.

Local governments remained relatively insulated from the economic maelstrom, reporting a 3% increase in tax receipts.

Because they derive fourth-fifths of their tax revenue from property taxes, local government receipts have weathered the downturn remarkably well.

Unlike the volatile income and sales taxes that states rely on, property taxes are stable because they are imposed on real estate values that are reassessed infrequently.

This is reflected in the stability of local tax revenue. Despite a four-year housing crisis that has dropped home values nearly 30%, according to the S&P/Case-Shiller Index, local government tax receipts have slipped in only one quarter since the financial crisis — the first quarter of this year.

State revenues, by contrast, sank in five consecutive quarters beginning in the fourth quarter of 2008, including a horrific 17% plunge in the second quarter last year.

To illustrate, local property tax receipts catapulted 16% in the first quarter of 2009 — just about the absolute trough of home prices, based on the Case-Shiller index.

This may be the last year property tax receipts rise nationally, Richard ­Ciccarone, head of municipal research at McDonnell Investment Management, said in an e-mail.

As more municipalities revalue real ­estate for tax assessments, the value of taxable property will diminish.

“In many places, but not all, assessed values are still rising because of a lag in assessments,” he said.

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