State Tax Revenues Drop

States Saw Third Consecutive Double-Digit Drop in Tax Collections During Third Quarter of 2009, New Rockefeller Institute Report Shows

Western States Report Worst Losses; Extended Drop in State Revenues May Have Started to Moderate by Fourth Quarter of 2009

Albany, N.Y. — Tax collections nationwide declined by 10.9 percent during the third quarter of 2009, the third consecutive quarter during which tax revenues fell by double-digit percentages, according to the latest report from the Rockefeller Institute of Government.

Combining current data with comparable historical figures from the U.S. Census Bureau, the Institute reported that the first three quarters of 2009 marked the largest decline in state tax collections at least since 1963.

Western states saw especially sharp declines in tax collections during the third quarter, while revenues fell by more modest levels in the Southeast, New England, Mid-Atlantic, and Plains regions.

For the fourth quarter of 2009, early data showed continuing declines, although the negative trend of the past year appeared to be moderating. For 38 early-reporting states, personal income taxes fell by 6.5 percent during October and November while sales tax collections declined by 5.5 percent.

“While the recession may be over for the national economy, it is far from over for the finances of state governments, and many states are still uncertain as to when expect a return to positive revenue growth,” said report authors Lucy Dadayan, a senior policy analyst at the Rockefeller Institute, and Donald J. Boyd, a senior fellow at the Institute. “Such improved news may begin in the early part of calendar year 2010. However, even if tax collections in the coming year move up from 2009 levels, the depth of the decline over the past two years will almost certainly leave state revenues significantly lower than those of any of the past several years.”

During the third quarter of 2009, personal income tax revenues for the states declined by 11.8 percent, when compared with the same period a year earlier. Personal income taxes represent one of the three major sources of revenue for the states. The other two, sales taxes and corporate income taxes, fell by 8.9 percent and 22.6 percent, respectively.

Overall, 48 states saw tax collections fall during the third quarter of 2009, with 22 states experiencing a double-digit percentage decline. During the previous quarter, 36 states saw a double-digit decline, suggesting some moderation during the most recent quarter.

Local taxes have been more stable than state taxes, showing continued but moderating growth in recent quarters. Overall local tax revenue nationwide rose by a modest 0.7 percent during the third quarter of 2009.

For a full copy of the report, click here.

2010_State_Revenue_Report.pdf1.65 MB