Report: State Tax Revenue Takes a Dive

The blitz of bad fiscal news from the states continues – unless you live in North Dakota.

North Dakota is about the only state “doing well” on the tax front as it saw sales tax collections tick up 14.4 percent in the last three months of 2008, while total tax collections in at least 35 states declined, the Nelson A. Rockefeller Institute of Government said in its latest quarterly report released today (March 12).

North Dakota also is among the five states that added jobs from October through December, while employment declined in the remaining 45, according to Rockefeller, the policy research arm of the State University of New York. Alaska, Oklahoma, Texas and Wyoming were the other states that saw job growth.

And for the first time since 2002, the total of all state tax revenues from all three major sources – personal income, corporate income and sales -declined, Rockefeller said.

While overall state tax revenues fell by 3.6 percent in the fourth quarter of 2008, compared to the same quarter a year earlier, weaker sales tax revenue accounted for most of the decline, the institute said.

After adjusting for inflation, tax revenues declined by 5.6 percent in the fourth quarter compared to the same quarter of 2007. Corporate income tax saw the sharpest decline at 9.3 percent, followed by sales tax and personal income tax at 5.9 and 0.4 percent, respectively, the institute said.

Rockefeller predicts “deeper revenue shortfalls” for states as the fiscal year progresses.

The grim news is hardly surprising. Tax revenues generally fall sharply after a recession for two or more years before any recovery, Rockefeller said.

In its report released in October, Rockefeller found that Arizona, California, Florida, Michigan, and Rhode Island currently are suffering the most from worsening U.S. economic problems, but Connecticut, New York, New Jersey and other states would soon be in the same boat.