State Tax Receipts Slow Down in the Second Half of 2011

Preliminary data compiled by the Nelson A. Rockefeller Institute of Government shows revenue growth for states slowed down in the second half of 2011 after two full years of gains.  According to the data, collections from major tax sources increased by 2.7 percent in nominal terms in the fourth quarter of 2011 compared to the same quarter of 2010. That is a noticeable slowdown from the 11.1 and 6.1 percent year-over-year growth reported in the second and third quarters of 2011 respectively.

Two big determinants for the overall growth rate were legislative changes in California and Illinois. In California, those changes led to a considerable year-over-year decline (8.9 percent) and in Illinois, significant increases (24.1 percent).  If these two outlier states are excluded, the rate of change normalizes a bit and overall state tax receipts during the last quarter of 2011 were 4.4 percent higher than a year earlier. But looking at either the 2.7 percent or the 4.4 percent figure, the quarterly growth in revenues is the lowest since mid-2010.


Forty-one states reported gains during the fourth quarter while nine reported declines in overall tax collections. Illinois reported the largest percentage increase in year-over-year collections – a $1.2 billion jump – mostly attributable to the personal income tax increase legislation that took effect as of January 2011. Illinois is followed by Connecticut, which had the second highest increase at 21.9 percent and Arizona with a 19.9 percent increase.

Among states reporting declines in overall tax collections, California reported the largest percentage drop, equal to a $2.4 billion loss. California’s decline is mostly attributable to the expiration of temporary tax increases that were subsequently not renewed by the legislature. Louisiana (-5.7 percent) and New Hampshire (-4.5 percent) also saw revenues drop by a significant percentage from 2010 – 2011.

Year-over-year percent change in state tax revenue, 4Q 2010 - 4Q 2011

Data Source: Nelson A. Rockefeller Institute of Government

The biggest category for gains was personal income taxes, which rose by 3.5 percent from the fourth quarter of 2010 to the fourth quarter of 2011. That figure is still much less than the 10.1 year-over-year percent growth reported in the third quarter of 2011. Sales taxes also reported modest growth of 1.8 percent for the period.  Corporate income taxes took a dive however, and after five consecutive quarters of growth, reported a decline of 3.8 percent in the fourth quarter of 2011.  Eight states reported double-digit growth in total tax collections, four states in personal income taxes, and four states in sales tax revenues.

Data Source: Nelson A. Rockefeller Institute of Government