State tax revenues grew by 7.8% in the fourth quarter of 2010, compared to the fourth quarter of 2009, according to Rockefeller Institute research and Census Bureau data. This is the fourth consecutive quarter that states reported growth in collections on a year-over-year basis. Forty-two states reported tax revenue growth during the fourth quarter, with nine showing double-digit growth.
Preliminary figures for January and February 2011 indicate further strength in state tax revenues this year. Overall collections in 45 early-reporting states showed growth of 9.5% compared to the same months of 2010, and 7.5% compared to the same months of 2009.
Local tax revenues, however, have experienced the reverse trend. Tax collections by local governments declined by 2.3% in the fourth quarter of 2010, mostly driven by declines in property tax collections. This is the result in part of the lagged impact of falling housing prices on property tax collections. Before the fourth quarter of 2010, local tax revenues remained relatively strong for most of the period during and after the last recession. Such a lag in the recession's impact on local government coffers is somewhat typical, say report authors Lucy Dadayan and Donald J. Boyd.
"Most local governments rely heavily on property taxes, which tend to be relatively stable and respond to property value declines more slowly than income, sales, and corporate taxes respond," Dadayan and Boyd write.