U.S. State Third-Quarter Tax Revenue Increased 4.8%, Census Bureau Says

U.S. state tax revenue increased 4.8 percent in the three months through September, rising for a third-straight quarter as gains in consumer spending boosted retail-sales levies, the Census Bureau said.

Revenue climbed $7.6 billion from the same quarter last year, to $168.1 billion, according to Census figures released today. The combined tax collections of state and local governments rose $14.1 billion, or 5.2 percent, to $284.3 billion, a fourth straight gain, the bureau said in Washington.

The Census figures echoed a Nov. 30 report from the Nelson A. Rockefeller Institute of Government, which said receipts from July 1 through Sept. 30 increased in 42 states, including California and New Jersey. Economists boosted their projections for fourth-quarter consumer spending this month and U.S. retailers had their best holiday-sales performance in five years, according to MasterCard Advisors LLC.

“We’re continuing to see revenues recovering a little bit, but the big issue remains what states do about the expiration of federal assistance next year,” said Joseph Henchman, director of state projects at the Tax Foundation, a nonprofit research group in Washington. “While collections may be growing at a pretty good annual rate, too many state budgets remain premised on what they were getting during the boom times.”

Sales Taxes

The third-quarter state revenue gain was faster than the rise in the previous three months, when receipts increased $3.8 billion, or 1.9 percent from a year earlier, to $204.3 billion. State tax revenue totaled $700.3 billion for the year through September, up from $691.6 billion in the previous federal fiscal year.

It marked the first annual increase since fiscal 2008, as the effects of the longest recession since World War II began to ease. Sales taxes provide more than 40 percent of all state receipts, according to Census Bureau figures. Five states -- New Hampshire, Oregon, Alaska, Delaware and Montana -- don’t collect a levy from retail transactions.

Two-thirds of states forecast revenue to fall short of needs to maintain current services in the next fiscal year, according to a July report from the National Conference of State Legislatures. In November, the Denver-based group said 31 states projected an $82.1 billion collective deficit for the year that begins in July for most. In 15, no 2012 budget gap was expected.

GDP Growth

State tax collections reflect the accelerating pace of the national recovery. U.S. gross domestic product, the broadest measure of economic activity, increased at a 2.6 percent annual rate in the third quarter, Commerce Department data show. The pace may reach 3 percent to 3.5 percent next year, former Federal Reserve Chairman Alan Greenspan said on Dec. 16.

Property-tax receipts, which mainly benefit local governments, increased 7.8 percent to $90.5 billion in the third quarter, the Census Bureau said.

Individual income-tax collections gained $2.8 billion, or 4.8 percent, to $60.5 billion, while state corporate income taxes declined $19 million, or less than 1 percent, to $7.9 billion. General sales taxes rose $2.8 billion, or 4 percent, to $72.1 billion, while collections tied to alcoholic beverages, cigarettes and motor vehicles also gained.

To contact the reporter on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net.

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