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States collecting more tax money

By Kay Bell · Bankrate.com
Tuesday, June 18, 2013
Posted: 3 pm ET

The truism that all politics is local applies to taxes, too. People tend to see more bang for their tax bucks, and therefore are a bit -- notice I said a bit, not entirely! -- more accepting of the levies when they are used on projects that directly affect them.

A new survey indicates that taxpayers in most states should soon be seeing the benefits of their locales' improving economic and tax collecting fortunes.

The spring 2013 edition of The Fiscal Survey of States, published twice a year by the National Association of State Budget Officers and the National Governors Association, finds that most states are coming out of the recession. While it's still a slow process, 30 states are on track to bank surpluses. Ten others are meeting their revenue targets.

"Revenue collections increased more than previously expected in fiscal 2013, but states are just coming off years of constrained budgets," said Scott Pattison, executive director of the National Association of State Budget Officers, in a statement announcing the latest survey results. "We do expect state spending to improve in fiscal 2014; however, there are still plenty of demands on states."

Personal income tax collections up

Much of the gains have come, according to the report, from personal income tax collections, which are estimated to have increased by 6.2 percent in fiscal year 2013 and are projected to increase by 3.7 percent in fiscal year 2014.

But state tax collectors aren't getting too excited.

Some of the 2013 increased revenue came from taxpayers who cashed in assets at the end of 2012 to take advantage of lower tax rates on capital gains and dividends before they were increased for higher earners under the American Taxpayer Relief Act, popularly known as the "fiscal cliff" tax bill.

And state sales tax collections are still lagging, likely because employment is still high in many areas, hampering consumer enthusiasm for making new purchases.

Sales tax collections grew by only 0.9 percent in fiscal 2012, but the report estimates that this segment of tax revenue will increase by 3.9 percent in fiscal 2014.

Losing taxes to online sellers

Don't, however, look for online sales to contribute to the growth.

The study says that online sales continue to outpace in-store retail sales, but that many Internet and catalog sellers are not contributing to state sales tax revenues.

The report uses the uncollected online sales tax situation to get in a plug for the Marketplace Fairness Act, which it says is a top priority of the nation's governors.

The bill would force online retailers nationwide to collect sales tax on purchases based on buyers' tax rates at their locations. It has passed the Senate but is languishing in the House.

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You also can follow me on Twitter @taxtweet.

Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and a co-author of the e-book "Future Millionaires' Guidebook."

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