WASHINGTON — State tax collections grew by 4.7% for the ninth straight quarter in the first three months of this year and are now above pre-recession levels, the Rockefeller Institute on Government said in a report released Thursday.
Total state tax revenues were 4.8% higher in the first quarter of 2012 than the same period in 2008, according to the 20-page report. The institute forecasts that states will likely see a 10th straight quarter of revenue growth, in step with an overall improving national economy.
Twelve states reported double-digit increases in total tax revenue during the first quarter, while 12 states reported declines.
Income tax and sales tax revenues both grew, at 4.7% and 4.4%, respectively. Corporate income tax revenues grew by 2.8%.
However, after adjusting for inflation, state tax revenues were still 1.6% lower compared to the same quarter in 2008. In 21 states, total tax collections in the first quarter of 2012 were still lower when compared to the same quarter in 2008, with the majority of those states located in the Southeast and New England, the report found.
Overall, collections in 46 early-reporting states showed growth of 5.8% in April and May 2012, compared to the same months of 2011.
One factor affecting trends in tax revenue growth are changes in state tax laws, such as enactment of sales tax reductions, or changes in personal and corporate income taxes. The most noticeable tax change was the expiration of the temporary sales tax in North Carolina and an increase in the sales tax in Connecticut, as well as personal and corporate income tax changes in Connecticut and Michigan, the report said.
During the first quarter of 2012, enacted tax increases and decreases produced an estimated net loss of $175 million of revenues, compared to the same period the previous year.
Generally, state fiscal conditions have recovered faster than the overall economy when measured by gross domestic product, employment or consumer spending, the report said.
But even though state tax revenues continue to recover, many localities face serious fiscal challenges, said Lucy Dadayan, senior policy analyst at the Institute and co-author of the report.
"The Great Recession led to a growing divergence between state and local government tax performance," Dadayan said. "State tax revenues collapsed steeply from 2008 to 2010 while local tax revenues continued to grow. Such trends have reversed since 2010, and state tax revenues have started trending upward while local tax revenues have been mostly heading downward."
Local taxes fell by an average of 1.8% over the last four quarters. Declines in local taxes have persisted due in part to the lagging impact of falling housing prices on property tax collections. The institute expects local taxes will continue to decline as home prices fall and state governments cut aid to localities.
The largest year-over-year growth in local tax collections in recent history was recorded in the third quarter of 2005 with a 5.8% increase, according to the report.