State Revenues Picked Up Speed in First Quarter of Year

Total state tax revenues were up by 8.6 percent in the first quarter of 2013 compared to the same period of 2012, according to a new report from the Rockefeller Institute of Government. In 39 states, tax collections were above peak levels for the first quarter of 2008.

Still, the outlook for the rest of the year is uncertain. The report attributed much of the growth to an 18.4 percent rise in personal income tax collections, an increase driven largely by high-income taxpayers accelerating their capital gains realizations in 2012 to avoid a possible tax increase. This growth can’t be expected to continue because it was caused in large part by taxpayer behavior, the report said.

“A lot of forecasters don’t know what to expect because they don’t know how much income was accelerated from 2013 to 2012,” said Lucy Dadayan, senior policy analyst at the Rockefeller Institute of Government and one of the report’s authors. “It’s an issue because it’s really hard to base a forecast on taxpayer behavior.”

On the whole, state personal income, sales and corporate income taxes have been recovering far more slowly than in past recessions. Sales tax collections continue to be particularly sluggish. Overall sales tax collections are still down a half percent from five years ago after adjusting for inflation, according to the report.

Overall revenue growth was strongest in the Far West region, where revenue increased by 47.9 percent, and in the Plains region, where collections increased by 20.1 percent. The growth the Far West was driven largely by California, where personal income tax collections grew by 52.2 percent in the first quarter of 2013 compared to the same period of 2012.

Part of the reason for the dramatic growth in California is a 2012 ballot measure that increased the personal income tax rate on taxpayers making more than $500,000. California represented about a fourth of personal income tax collections nationwide in the first quarter of 2013.

Excluding California, personal income tax collections grew by 10.2 percent. Personal income tax collections declined in six states: Delaware, Idaho, Indiana, Rhode Island, Utah and West Virginia.