Drop in income tax collections depressed state revenue: Census

DETROIT (Reuters) - A surprisingly large decline in U.S. states' income tax collections helped depress state revenue for the entire second quarter, U.S. Census data released on Tuesday showed. Many states had prepared for a revenue drop but were surprised by its magnitude, according to the Nelson A. Rockefeller Institute of Government, a public policy research group that closely tracks state revenue. State revenue rose sharply in 2013 after taxpayers sold off investments, paid bonuses and made other financial moves in the final hours of 2012 as the so-called Bush tax cuts expired. This created a bulge of taxable income in April 2013, with total state revenue surpassing its pre-recession peak when adjusted for inflation. The decline in total revenue in 2014 was almost exclusively caused by a 6.7 percent drop in individual income tax collections, which make up nearly 40 percent of state revenue. On the other hand, general sales and gross receipts taxes, constituting around 28 percent of revenue, rose 5.3 percent from a year earlier. Analyzing data from 48 states, the Rockefeller Institute estimated in a report released last week that states' tax collections declined 1.7 percent in the second quarter, from the same quarter of 2013. That made it the weakest quarter since the first quarter of 2010, according to the institute. The Census data showed that state tax revenue rose 0.51 percent in the first quarter of 2014 from the first quarter of 2013. Total state tax revenue was $259.4 billion in the second quarter, down 0.5 percent from the $260.7 billion in the same period of 2013, according to the Census report. When looking at state and local revenue combined, the Census found total tax collections little changed at $309.5 billion in the second quarter. That compares with $309.7 billion in the same quarter of 2013. Property taxes, levied almost exclusively by local governments, rose slightly from the second quarter of 2013. (Reporting By Lisa Lambert)