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U.S. state tax revenues hit record highs in second quarter: Census

A woman walks out of the Internal Revenue Service building in New York in this May 13, 2013 photo. REUTERS/Shannon Stapleton
A woman walks out of the Internal Revenue Service building in New York in this May 13, 2013 photo. REUTERS/Shannon Stapleton

By Lisa Lambert

WASHINGTON (Reuters) - Tax revenues for U.S. states soared to their highest in 25 years in the second quarter as personal income tax collections reached record amounts, U.S. Census data released on Tuesday showed.

Total state tax revenues rose 9.4 percent from the second quarter of 2012 to $259.6 billion, the largest intake on records going back to 1988 and the 15th straight quarter of increases.

Individual income taxes were up 19.4 percent to $106.2 billion, also the highest on record.

Most states ended their fiscal years on June 30, the last day of the second quarter. For that year, total state tax revenues were $843.40 million, also a record high, Census records show.

Since January, state political leaders and economists have warned income tax revenues could swell in the second quarter and that the strength would likely not persist. The quarter encompasses April, when federal and most state taxes are filed.

Because tax cuts passed under former President George W. Bush were set to expire at the end of 2012, many taxpayers sold investments or made other financial moves in the waning days of last year to avoid potentially steep tax bills in 2013. In addition, some companies made special dividend payments to investors, while some employers may have accelerated bonus payments to executives.

This burst of income buoyed states, which often pattern their tax codes after the federal government's.

Revenues had peaked for most states at the end of 2008, and then fell for five straight quarters during the 2007-09 recession. The climb back has been slow and hard, but over the last year revenues surpassed the pre-recession peaks when adjusted for inflation.

The Census noted there was another reason for the second quarter revenue burst: California.

The state raised taxes on annual incomes of more than $250,000 through a ballot proposition passed in November, and also increased its sales tax. California brought in $43.58 billion in the second quarter, which accounts for nearly 17 percent of the total for all 50 states.

Recently, the Rockefeller Institute of Government, an independent research group, estimated that California's revenues grew 27.7 percent over the year.

Strip away the federal tax changes and California's tax hike and the current revenue trend can be summarized as "slow and steady," said Arturo Perez, a National Conference of State Legislatures analyst.

In a survey NCSL released last month, state lawmakers said they expected revenue collections to grow less in fiscal 2014, which for most started on July 1.

Altogether, state general fund revenues grew 5.3 percent in fiscal 2013, a bigger increase than states had projected. In fiscal 2014, states expect revenues to grow only 1.3 percent.

At the same time, states say higher education and healthcare will lead their spending to increase 3.9 percent. The mismatch between revenue and spending growth will likely cause their year-end balances to fall 11.6 percent, according to the survey.

When looking at both state and local tax collections, the Census found revenues in the second quarter were $382.2 billion, 7.2 percent higher than the second quarter of 2012.

Property taxes, which make up almost all local revenue, were $91.9 billion. That was "not statistically different from property tax revenue of $90.1 billion in the same quarter of 2012," the Census found.

Housing markets across the country are heating up, with prices and home values rising. But the improvements will take a while to show up in local governments' revenues primarily because of the timing of property value assessments, analysts and civic officials say.

In a special research note on Tuesday, S&P Dow Jones Indices said the trend for property tax collection growth has been positive recently, noting that in the first quarter the revenues rose 2.8 percent.

(Reporting by Lisa Lambert; Editing by Kenneth Barry)

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