State tax collections had a strong case of the milds in the second quarter of 2007--a 6.1 percent increase in tax revenue, compared to the same quarter of 2006. That said, this nominal growth rate, as measured by the Rockfeller Institute's "State Revenue Report," was weak by long-term historical standards.
The biggest drag was corporate income taxes. That tax slowed to its second worst performance in the past four years. While the corporate income tax usually expands or diminishes, depending on timely receipts and compliance, it "rarely increases at such a low rate," according to Alison Grinnell and Robert Ward, the authors of the report.
Sales tax collections were also tenuous--the second lowest in four years. State officials originally had concerns about personal income tax collections, but those concerns, Corina Eckl notes in the National Conference of State Legislatures' report, "State Budget and Tax Actions 2007," have shifted to sales tax revenue and the housing market slump. All of which suggests that third and fourth quarter results are unlikely to show much improvement.
There was better news on the personal income tax front. That tax moved up to an 8.7 percent growth rate in the second quarter. Not a bad take. Nonetheless, it was only about half of the growth rate posted a year ago in the second quarter.
While revenues slow down, year-end balances also are shrinking. NCSL reports that more than half the states experienced a decline in year- end balances in FY 2007. Many are beefing up their rainy-day funds.