WASHINGTON — State tax revenues are growing more slowly again, the Nelson A, Rockefeller Institute of Government said Tuesday in a report based on preliminary data for the fourth quarter of last year.
State collections from major tax sources in the fourth quarter of 2013 increased by 3.0% in nominal terms, compared to the fourth quarter of 2012, the report said. The 3% gain was much lower than the 6.1% year-over-year preliminary increase for the third quarter and 9.0% gain for the second quarter.
The lower increase in the fourth quarter is mostly due to the fact that personal income tax collections softened in the third quarter of 2013 and were a mere 1.0% in the fourth quarter, down from 5.3% in the previous quarter, the report said.
The primary reason for the lower gains in personal income taxes is that some taxpayers, driven by fear that federal tax rates would go up in 2013 due to the fiscal cliff agreement, accelerated their estimated payments of income in 2012, said Lucy Dadayan, senior policy analyst and co-author of the report.
Those taxpayer's fears were borne out when that agreement increased the capital gains rate to 20% from 15% and the top income tax rate to 39.6% from 35%, she said.
Personal income taxes made up 41% of the total tax revenue reported for the fourth quarter. Among 41 states with broad-based personal income taxes, 28 recorded growth that quarter, with two reporting double digit increases. Idaho reported the largest increase at 11.1% while Kansas reported the largest decline at 20.2%.
But Dadayan and Donald Boyd, the other author of the report, said the lower gain in personal income taxes should not be interpreted as a sign of trouble.
"While economic softening may have contributed as well, the sales tax has been resilient, suggesting that the income tax weakening may be drive by the depressing effects of temporary factors," they said in the report.
State sales tax collections rose by 5.5% in the fourth quarter of last year, compared to the same quarter the previous year. Only six of 45 sales-tax states reported declines, with Arizona showing the largest drop of 14.4%.
Corporate income tax was up 5.5% in the fourth quarter in 2013 over the same quarter the previous year. Twenty-two of 45 states reported declines for the fourth quarter compared to the year before, with 15 showing double-digit decreases, while 23 states showed gains, including 16 with double digit increases.
The Institute said it will provide a full report on the fourth quarter of 2013 after the Census Bureau's data for that quarter are available.
