State Tax Revenue Surge In Fourth Quarter Was A One-Off, Rockefeller Institute Warns

Overall state tax revenues increased by 5.2% in the fourth quarter of 2012, the Nelson A. Rockefeller Institute of Government reported April 24. But the Institute’s researchers warned that the surge, which drove personal income tax collections up 10.8%, was a one-time event prompted by taxpayers taking actions to minimize federal tax liability they expected after the so-called “fiscal cliff.”

The quarterly report, available in full at rockinst.org, details only minor increases in other state tax categories for the fourth quarter. Sales tax receipts rose 2.7%, corporate income taxes 1.2% and state taxes on motor fuels, motor vehicle licenses, tobacco and alcoholic beverages grew by less than 2.5%. Personal income and sales tax receipts have risen for 12 consecutive quarters, since state receipts plunged during the Great Recession. And as of the fourth quarter, 36 states reported state revenues exceeded those of the fourth quarter 2007, the start of the recession.

The Institute also pointed to continued weakness in local tax collections in the fourth quarter, with a four-quarter moving average of local collections, adjusted for inflation, rising only 2.3% in the quarter. The rate of growth slowed slightly from the third quarter.

The outlook for state tax revenue growth for the 2013-14 fiscal year remains tepid. The Institute expects the push of receipts into the fourth quarter last year to slightly depress revenue collections this year. Tax revenues growth at both the state and local levels has slowed in recent quarters and the Institute continues to point out that tax receipt growth following this recession has been historically much slower than in other recent recessions. Still, many states are in much better fiscal shape than they were two or three years ago, as revenues have improved and earlier cuts in employees and other spending have not been increased in the interim. Many states are required to run balanced annual budgets.

State and local taxes are important to the foodservice equipment and supplies industry since they fund both capital and operating budgets for segments such as schools, healthcare and corrections.