WASHINGTON — Personal income tax collections declined significantly in most states during the second quarter of this year, according to preliminary data in a report released by the Nelson A. Rockefeller Institute of Government on Wednesday.
This is the second quarter in a row that states have reported downturns in personal income tax collections.
Total tax collections were affected by the drop in personal income taxes, despite a notable rise in the sales tax revenue. As the weakest quarter since 2010, total tax collections were down by 1.7% in nominal terms, compared to the same quarter a year before. The decline, based on preliminary data from 48 states, was anticipated and believed to be driven by the federal "fiscal cliff" that caused a temporary bubble in income tax collections.
"This volatility does not appear to be due to underlying economic factors, but instead appears largely attributable to the implications of policy changes on the federal level as well as to legislated tax changes in many states," said the Institute.
Among those states, only 19 reported gains in their total tax revenue. Oregon, with a gain of 8.1%, beat the others on tax collections. Texas came in second with a 7.7% increase.
Twenty nine of the 48 states reported decreases in total tax collections, with Kansas and Alaska showing the largest declines of 21.9% and 15.7%, respectively.
As for the personal income tax revenue, the national rate fell by 7.1%, with 36 states reporting losses, and 12 double-digit declines. Among all states, Kansas and North Dakota had the biggest loss at 42.9% and 32.8%, respectively. Both states reduced income tax rates in 2013, which might be mostly responsible for declines. Minnesota achieved the biggest gain, at 6.7%.
Overall corporate income tax revenue fell slightly by 0.1% for the first time since the third quarter of 2012, while sales tax collections were relatively strong at 4.2%.
Among the 43 early-reporting states on sales tax collections, 36 states reported gains, while seven states faced slumps. Arizona and Kansas reported the largest declines at 17.7% and 3.6%, respectively. The large declines in Arizona were attributed to the expiration of a temporary one-cent tax increase from 2011 to 2013. Maine and Colorado had the biggest gains in sales tax collections, at 12.7% and 11.2%, respectively
State tax revenues had been continuously recovering since 2010, before declining in the first two quarters of this year. Despite the lingering effects of the federal fiscal cliff, the Institute expects that personal income tax collections should resume growth in the second half of this year.
