Report: State Tax Revenues up by 5.7% in Fourth Quarter of 2012

State tax revenues rose 5.7% in the fourth quarter of 2012 compared to the same time in 2011, the strongest growth in the last six quarters, the Rockefeller Institute of Government reported Wednesday.

Tax collections have risen continuously for the last three calendar years after there were five quarters of decline following the Great Recession, the report said.

Most of the growth was driven by the 10.8% increase in personal and income tax collections, according to preliminary data from the Census Bureau.

The rapid income tax growth is consistent with forecasts from a recent Rockefeller Institute report which said, “year-end actions by taxpayers to minimize their expected federal tax liability in light of the ‘fiscal cliff’ and federal actions to avert the cliff are likely to boost state income taxes in the October-December quarter and in the first and second quarters of 2013.”

However, the Rockefeller Institute warned that states are on a revenue roller coaster and the year-end actions by taxpayers will likely depress state income tax revenue slightly in 2013 and 2014.

“State fiscal revenue recovery has been much slower and prolonged compared to historic averages, and is still far from full recovery,” wrote Lucy Dadayan, senior policy analyst at the Institute and author of the report. “While state tax revenues have shown a relatively strong growth in the fourth quarter of calendar 2012, that is likely not an indication of improvement in state revenues. State officials should take an extra caution when interpreting the growth in income tax collections.”

In the fourth quarter, sales tax was weak with only 2.2% growth and corporate income tax fell by 4.1%, the report said.

Delaware and Hawaii reported the largest increases in overall tax collections with 14.6% and 13.4%, respectively. Five other states, Iowa, Louisiana, Mississippi, Colorado, and Utah also reported double digit overall tax growth.

The Rockefeller Institute will provide a full report on the fourth quarter Census Bureau data in the coming weeks.

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