News Release - Sales Tax Collections Across U.S. Experience Worst Decline in 50 Years, New Rockefeller Institute Quarterly Report Finds

For Immediate Release –

April 14, 2009

Media contact: Mark Marchand – (518) 443-5283 / marchanm@rockinst.org

Sales Tax Collections Across U.S. Experience Worst Decline in 50 Years, New Rockefeller Institute Quarterly Report Finds

Overall Collections Fell 4 Percent in Fourth Quarter of 2008, While Sales Taxes Were Down 6.1 Percent; Early Data for First Quarter 2009 Show Further Sharp Declines

Albany, N.Y. — The overall amount of taxes collected by the 50 states continued to fall during the fourth quarter of 2008, with state and local sales taxes — one of the largest components of state and local budgets — suffering the worst decline in half a century, according to a new Rockefeller Institute of Government report issued today.

In the face of a weakening economy, the Institute’s regular quarterly report on tax revenues generated by the states shows an overall decline of 4 percent during the fourth quarter of 2008, compared with the same period a year earlier. Forty-two of the 50 states experienced declining revenues, with the Far West region suffering the most. Sales taxes, which are usually the largest or second-largest source of state tax revenue, suffered a 6.1 percent decline. Including those collected by local governments, the sales tax showed its weakest performance in 50 years.

“While income growth has slowed, the big story so far is that consumption of goods — especially durables — has been declining,” said Donald J. Boyd, senior fellow at the Rockefeller Institute and study co-author. “This is a classic response of consumers to economic uncertainty and fears of lower income: eliminating, postponing, and scaling back purchases of items that are not necessary or not needed immediately, such as new cars, washing machines, and so on.”

Today’s report also contained preliminary numbers for the first quarter of 2009 — indicating that the declines are expected to continue.

“Preliminary data for the January-March quarter suggests that fiscal conditions deteriorated even further, and the second major tax source for states — the income tax — is likely to weaken dramatically in April,” Boyd said. “With data for January and February now available for 41 states, tax revenue for the two months combined has declined by 12.8 percent versus the same period last year.

“Based on our expectation that revenue conditions will deteriorate further, there is great risk that state budgets being negotiated over the next month or two will have to be buttressed with additional spending cuts or tax increases as the year progresses.”

In addition to the sales tax decline during the fourth quarter of last year, personal income tax collections fell 1.1 percent while corporate income tax revenue dropped by 15.5 percent.

Lucy Dadayan, senior policy analyst at the Institute, was co-author of the new report.

For a full copy of the report, visit www.rockinst.org.

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