WASHINGTON - State tax revenues throughout the nation are flat for the first time since the 2002 recession, the Rockefeller Institute reported yesterday.

Total tax revenues for 42 states showed a mere 0.1% gain from July to September, down sharply from the 50-state growth rate of 3.6% during the second quarter, the report said. The data shows tax revenues will worsen in coming months, leading to state budget shortfalls.

"We expect revenue collections to deteriorate further in coming quarters and believe they are likely to be down substantially when income tax returns are filed in the April-June quarter of 2009," Don J. Boyd, senior fellow at the institute and co-author of the report, said in a release. "We expect further revenue shortfalls and mid-year budget cutting among states as the fiscal year progresses."

After adjusting for economy-wide inflation of 2.7%, real tax revenue declined by 2.6% nationally and was down in 31 of the 42 states, according to the report, which was co-authored by Lucy Dadayan, a senior policy analyst.

The report noted the two largest revenue-producing taxes - income and sales - have been trending downward.

Income tax collections slowed to 1.5% in the third quarter compared to a year ago. The 1.5% figure contrasts with 6.7% growth in the second quarter of this year.

The sales tax, down 0.7%, dropped in two consecutive quarters. It was down 1.9% in the second quarter.

The corporate income tax - a relatively small share of the typical state's tax revenue - was down a "dramatic" 15.3% in the third quarter compared to the same period last year, according to the report. It has fallen for the last five quarters.

"The sales tax decline is particularly noteworthy because it reflects the leading edge of the just-beginning decline in consumer spending," the report said. "Preliminary data from the Bureau of Economic Analysis, real consumption of durable and nondurable goods - an important component of state sales tax bases - declined by 1.9% in the quarter versus the same period last year. This was the largest such decline in 17 years and will be followed by further and possibly sharper declines, as the impact of layoffs, lower stock market values, lower housing prices, and shaken consumer confidence reduce the ability and willingness of consumers to spend."

States showing the largest decreases in tax revenue collections were Florida, down 8.2%, and Arizona, down 7.8%. States showing the largest increases were Vermont, up 32.8%, Wyoming, up 18.2%, and Maryland, up 9%.

Personal income tax collections dropped most in Utah, down 12.6%, and increased the most in Michigan, up 7.9%. Sales taxes were the lowest in South Carolina, down 12.5%, and increased the most in Connecticut, up 21%.

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