State tax collections: Weakest in 5 years

Most attention these days is paid to the national economy. But according to the latest numbers from the Rockefeller Institute of Government, we’d better start looking at the government level one step down.

State tax collections are at their weakest in five years, according to the public policy research arm of the State University of New York in Albany. In fact, sales tax collection, a key
revenue source for most states, didn’t grow at all in this year’s first quarter. That’s the first time in six years that has happened.

I guess folks really are cutting back on their spending. Recent (and upcoming) state sales tax holidays aren’t going to help either. And if the trend continues, governors and state legislators will probably be forced to make budget cuts or enact tax hikes in
the coming months.

According to the Rockefeller Institute of Government’s latest quarterly report, state tax revenues in the first three months of quarter of 2008 grew only 1.7 percent compared to the same period last year. That’s the slowest growth rate since 2003.

Rockefeller Institute analysts said that when adjusted for inflation in the cost of government purchases as well as legislated tax changes, state tax revenues declined by 5.3 percent, the third quarter in a row that total adjusted state revenues fell.

Regional differences: In general, state tax revenues declined in the Southeast and Rocky Mountain states, while growth was in the single digits in all other regions.

New England states showed the strongest overall revenue growth, about 5.3 percent, while the Southeast states saw tax revenue drop by about 2.6 percent.

There were a few bright spots, for state coffers if not state residents. Four states — Alaska, Iowa, North Dakota and West Virginia — had total tax collections that were up more than 10 percent.

At the other end of the tax collection spectrum, revenues fell in 15 states, with Arizona, Montana and Florida experiencing declines of more than 10 percent. Foreclosure effects anyone?

Georgia, Idaho, Mississippi, Nebraska, Nevada, New Jersey, North Carolina, Ohio, Oklahoma, Rhode Island, South Carolina, and Utah showed smaller tax revenue drops.

California isn’t on either of the Rockefeller lists of tax revenue extremes, but the Golden State is definitely facing some tough tax choices. Fellow tax blogger taxgirl reports that the Governator is proposing a temporary penny sales tax increase to help balance the budget.

California‘s current levy is 6.25 percent, but when combined with local taxes, consumers could pay as much as 8 percent sales tax on their purchases.

How does your state compare with others when it comes to sales taxes? Find out at this Sales Tax Clearinghouse page.