States Record Impressive Gains In Tax Revenues

by Leroy Baker, Tax-News.com, New York

16 June 2005

US state tax revenues have recorded strong growth so far in 2005, continuing the upward trend seen through 2004, according to a report by the Nelson A. Rockefeller Institute of Government.

The 11.7% increase in collections compared to the same period last year is the strongest January-March quarter tax revenue growth since at least 1991, and the Institute suggested that relatively strong inflation and changes in state tax laws had contributed significantly to the growth.

However, after adjusting for tax law changes (2.5 percentage points) and inflation (5.1%), real underlying state tax revenue growth was a more modest 3.9%.

All three major tax sources showed strong growth. The sharpest gains were recorded in the corporate income tax, which grew an impressive 61.1% in the January-March quarter, up from the previous quarter’s 27%. This was by far the strongest growth since at least 1991, with the California tax amnesty adding considerably to this increase.

Personal income tax revenue grew 11.2%; this was an improvement from the previous quarter’s 8.8% growth.

Sales tax revenue also increased in the January-March quarter compared to this quarter last year. The 5.8% increase is slightly lower than the 6.0% growth from the previous quarter.

“States had a good quarter of tax revenue growth in January-March 2005,” observed Rockefeller Institute Senior Policy Analyst Nicholas Jenny.

“While states still need to find ongoing revenue to replace one-time or temporary measures enacted to balance their budgets during the lean years, as well as deal with ongoing and emerging budget challenges like Medicaid and federal domestic spending cuts, the revenue side of the equation currently is looking good," added Mr Jenny.

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