1Q State Tax Collections Grow

Overall state tax collections continued to increase during the first quarter of this year, driven mostly by strong growth in personal income tax collections, continuing improvement in the economy and a large tax increase in California, the Rockefeller Institute of Government concluded in a report issued Wednesday.

The growth in personal income tax collections was the strongest since the start of the Great Recession, although it was weaker if California is excluded from the total, said the report, written by Lucy Dadayan and Donald J. Boyd.

The report, a compilation of preliminary data from 47 states, shows that collections from major tax sources increased by 9.3% in nominal terms in the first quarter, compared to the same quarter last year. Sales tax growth was 6% and corporate income tax growth was 3.5%, according to the report.

Personal income tax collections rose 17.6%, with much of that due to California where income tax collections increased by nearly $6.3 billion or 52.2%. "If we exclude California, income tax collections in the remainder of the nation show growth of 9% in the first quarter," the analysts said.

The report contends that the strong growth in tax revenues during the first quarter of this year and the last quarter of 2012 is not likely an indication of improved underlying economic factors, but is rather due to taxpayers' efforts to shift income from 2013 to 2012 to avoid higher income tax rates and the idiosyncratic timing of California's tax increase. 

While state tax revenues have been recovering for more than three years now, they are far from full recovery, the report said.

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