State Tax Collections Up But Still Lag 2008: Report

WASHINGTON — The first two quarters of the year showed gains in state tax revenues, thanks mostly to legislated tax increases, but total collections still linger below 2008 levels, the Rockefeller Institute of Government said Tuesday.

Overall state taxes, along with sales and personal income taxes, grew in the April to June quarter by 2.3% over the same quarter last year, the institute found in its survey of states. Early signs are positive for revenue to keep improving, the institute added in a report on the survey.

“Preliminary figures for July and August for 42 early reporting states indicate that the states are on the road to gradual fiscal recovery, with overall tax collections so far showing above-inflation growth of 2.8%,” the report said. “Revenues are slowly rebounding.”

Reported gains in tax revenues for 34 states in the second quarter are a distinct change from the previous five consecutive quarters, when revenues took a record-breaking tumble. According to the institute, 12 states said they had double-digit growth in their second-quarter revenues.

The longer-term picture for states still reflects a struggling economy, though. States’ total tax collections fell about 2.7% in fiscal 2010 over the previous fiscal year. Most states’ fiscal years end June 30.

The report also showed that local governments were less harshly affected than states by the recession, though state and local governments’ combined property tax trend is negative while the sales and income tax trend is improving.

The most lucrative tax source for state governments were sales and personal income taxes, which rose 5.7% and 1.6% respectively in the second quarter over the same period last year. The sales tax figures were especially notable, as they were the largest year-over-year improvement in sales tax collections since the third quarter of 2006.

While states are heading toward their previous tax revenue levels, cities are in the middle of their own downward slope, the National League of Cities warned in a report earlier this month. The NLC surveyed city finance officers and found that property and sales tax revenues slowed in 2009 and again in fiscal 2010, which for most states has ended. The group predicted the slump will continue this year and next.

But the Rockefeller Institute noted that second-quarter 2010 local tax revenues showed some improvement, growing by about 3% overall during the quarter.

The upward trend was helped by tax increases by California, Massachusetts, New York, and North Carolina, the report said. Those and other states’ new tax laws generated almost $5 billion in the second quarter. Without those new laws, the total revenue change for states would have been negative instead of positive, it said.

The Rocky Mountain region had the country’s largest decline, 2.3%, in tax revenue in the second quarter; the New England region fared best with 7.9% growth.

For individual states, Arkansas and Louisiana posted double-digit drops in their tax revenues during the quarter, while Alaska and Pennsylvania collections grew by $700 million and $1.1 billion, respectively.

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