WASHINGTON – State tax revenues are experiencing slow growth, a trend that's expected to continue in the near future due to weak sales tax and income tax collections, according to the Nelson A. Rockefeller Institute of Government.
Lucy Dadayan, senior policy analyst for the Rockefeller Institute, provided The Bond Buyer on Tuesday with preliminary data for July-September of this year, which showed an overall tax collection growth of 1.1%. The data also showed a 2.6% personal income tax growth as well as 2.1% growth in sales tax collection for the second quarter of this year.
The data is preliminary because only 45 states have reported thus far, but it shows large declines in estimated payments, which is due in part to stock market impacts, she said.
The five states that have not yet provided data are Massachusetts, New Mexico, Hawaii, Wyoming and Nevada. These states' figures should not significantly impact the overall data in either direction, she said.
The overall tax collection data is not surprising, she added.
"It's expected given the situation," Dadayan said. "The historic low prices of oil and weakness in the stock market – those are the factors that lead to lower forecasts."
The second quarter estimates follow a bleak forecast that Don Boyd, director of fiscal studies for the Rockefeller Institute, presented at the National Association of State Budget Officers' fall meeting in Alexandria, Va., last month.
Of the 37 states reporting full data before that presentation, total sales tax collections for June-August of 2016 were down on a year-to-year basis in 12 states, according to the institute. Only seven states had growth of 5% or more, Boyd said.
States have projected weak growth in both state personal and sales tax revenue collections in fiscal 2017. He expected forecasts to come down even further because the public revenue estimates do not fully reflect the April-June revenue declines and further weakening of sales taxes.
Dadayan attributed the slow growth in sales tax to various factors, including online shopping and cheap oil prices. Roughly nine states that are highly dependent on energy goods and services have experienced large declines in both sales tax and income tax, Dadayan said.
"Lots of sales tax dollars have been lost over Internet sales," Dadayan said. "And it's the impact of the Great Recession on consumer behavior in general - people are spending less of discretional money than before. They are much more conservative in their discretionary spending habits."
"And, of course, it's also driven by low oil prices which results in lower tax collection," she added.
Of the 17 states reporting April income tax data, 14 states experienced a decline from the previous year, which the Rockefeller Institute said was "well short" of projections. Ohio, at 41.3%, experienced the sharpest decline.
Boyd highlighted several reasons, including low inflation and slow real growth, which also suggest slow growth in withholding and in consumption subject to sales tax. A tepid stock market also creates a sluggish environment for revenue, Boyd added.
The Rockefeller Institute said that states in the first quarter of 2016 experienced just a 1.6% growth in total state taxes, which include sales, personal income, corporate income, and property taxes compared with the same period in 2015.
