State tax revenue drops first time since 2002

Money News is reporting the first drop in sales tax revenue in 6 years. With American states running budgetary shortfalls, looking to cut back spending and reduce entitlement programs while their federal counterparts continue to accelerate budgetary deficits, who or what will continue to prop up the US consumer-led economy?

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U.S. Sees First Sales Tax Revenue Drop in 6 Yrs.

MoneyNews
Friday, May 2, 2008

WASHINGTON -- U.S. consumers are cutting back on spending, driving the first nation-wide decline in sales tax revenues in six years, according to a report released Thursday. From January to March, sales tax revenue fell in 21 states from the same quarter last year, according to the Nelson A. Rockefeller Institute of Government.

Forty-five states rely on sales taxes as a major revenue source and by Thursday, 36 had reported on collections for the past quarter. "The sales tax declines suggest that consumption, retail sales and the income needed to support spending are slowing considerably," the report said. The institute researches state and local governments for the State University of New York.

Sales tax revenue dropped 0.1 percent for the nation as a whole, according to the report, the first decline since the first quarter of 2002. The government Wednesday said that consumer spending grew last quarter at the weakest rate since 2001.

Sales tax collections dropped the most in the Southeast, falling 3.8 percent. The Rocky Mountain region, which includes states such as Colorado and Idaho, had an average decline of 1.8 percent. Collections rose the most in the Mid-Atlantic region, up 2.4 percent. The institute said Maryland registered the largest gain, up 8.9 percent. The state had boosted its tax rate to 6 percent from 5 percent.

After Maryland, Texas had the biggest rise, at 6.7 percent. The largest revenue drop was in South Carolina, but it was due to a new law eliminating sales taxes on unprepared food. The second largest decline was 7.0 percent in Virginia, followed closely by Florida.

Most states have laws requiring them to balance their budgets this year, and drops in major revenue sources could force them to cut programs and other spending. According to the National Conference of State Legislatures, sales taxes provided a third of state tax collections in 2004, with individual income taxes making up nearly another third.

Since the housing market bubble burst and the credit crisis gripped the country, many states have cut spending. For fiscal year 2009, 23 states and Puerto Rico are projecting budget shortfalls, according to the conference.