State Tax Revenue Plummets in 4Q, With More Bad News to Come

WASHINGTON — State tax revenues declined sharply in the fourth quarter of 2008, but the trouble is far from over as preliminary January estimates show continued deterioration, according to a Rockefeller Institute report released yesterday.

Total tax revenue declined in the fourth quarter of last year in 35 of 47 states that report figures early, with 21 states having declines from all three major sources of tax revenue — sales, personal income, and corporate income.

“We expect revenue collections will deteriorate even further in the coming quarters, based on recent developments in the economy and early data from January 2009,” the report said.

Data from individual states show that major taxes collected were only $141.8 billion in the fourth quarter of 2008, compared to $147.1 billion in the same quarter of 2007. Sales tax declines were $3.3 billion of the total $5.4 billion loss for the period.

Overall tax revenue declined by 3.6% — the weakest performance since a 9.4% year-over-year decline in the second quarter of 2002. After adjusting for inflation, tax revenues declined by 5.6% in the fourth quarter compared to the same quarter of 2007.

Corporate income tax collections dropped the most, at 9.3%, followed by sales tax and personal income tax at 5.9% and 0.4%, respectively. This is the first time since 2002 that all three taxes have declined at the same time.

Of the 45 states that rely on sales tax revenues, 35 had sales tax declines compared with the same quarter last year and eight reported double-digit declines.

Corporate income taxes collected by 30 of the 42 states that reported them declined for the fourth quarter compared to the same quarter of 2007, and 27 of those had double-digit declines.

But the news turns uglier for 2009, as early data for 36 states reporting results for January so far show that tax revenue collections worsened further compared to the same month of last year.

“Deeper revenue shortfalls and more budget cuts are likely on the way for most states as the fiscal year progresses,” the report said, adding that tax revenues generally fall sharply after a recession for two or more years.

 

 

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