U.S. states stung by drop in April income tax revenue

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By Karen Pierog

CHICAGO (Reuters) – U.S. state personal income taxes tumbled in the key revenue month of April due to lower investment returns from weaker equities and energy prices in 2015, a Reuters analysis of state data found.

This April, personal income tax (PIT) revenue fell by an average of 9.88 percent compared to the same month last year in the 32 U.S. states and Puerto Rico for which Reuters has data.

Taxes on wages and investment income are a top revenue source for the 43 states that collect it. April is the most important revenue month because it contains the tax filing deadline and the tendency of taxpayers who owe money to wait until the last minute to pay.

Personal income taxes make up slightly more than a third of states’ total general fund revenue, and sales taxes comprise roughly another third.

Collections have been volatile in recent years, including 2013’s “April Surprise,” which delivered unexpectedly high revenues to states as taxpayers sold investments to dodge an increase in federal taxes.

Collections plunged in April 2014 then rebounded last year with the help of a robust stock market.

In 2015, the U.S. benchmark S&P 500 stock index lost 0.7 percent compared with a 11.4 percent gain in 2014.

“The kinds of income that are kind of driving this are particularly capital gains related to the stock market. If you had to find a No. 1 culprit, that’s it,” said Don Boyd, Director of Fiscal Studies at the Rockefeller Institute of Government in Albany, New York.

News of falling revenue comes as most states are nearing the end of fiscal 2016 and the beginning of fiscal 2017, leading some to turn to temporary measures to plug budget holes, Boyd said.

John Hicks, executive director of the National Association of State Budget Officers in Washington, said the 20 percent growth rate in the tax in April 2015 from a year earlier set “an extremely high bar.”

He said that PIT withholding has been more stable for states than capital gains-related tax revenue.

“The underlying personal income information – even while we’ve been bouncing for the last few years – has still been on a slow, but increasing trend,” Hicks added.

MOST STATES SEE COLLECTIONS DECREASE

Louisiana had the most dramatic drop at 81.5 percent. The plunge was due to a change in the way Louisiana issues refunds as well as a fall in withholding collections because the last day of April fell on a Saturday.

This resulted in some revenue payments being deposited in May, according to Kizzy Payton, press secretary for the Louisiana Department of Revenue.

Louisiana – like North Dakota, where PIT collections fell 34.7 percent – is also feeling the sting from the struggling energy sector. Oklahoma, another key energy producing state, experienced an 18 percent drop in revenue in April.

New Jersey’s PIT revenue was down 14.8 percent, largely due to a decline in taxpayers’ investment income and the state’s tax structure, which relies on wealthy residents.

Oregon’s receipts came in a third lower than last year, mainly because excess state revenue during the previous year led to a surplus income tax credit on 2015 returns, said Bob Estabrook, spokesperson for the Oregon Department of Revenue.

Lower income tax rates led to revenue drops in Illinois, down 28.8 percent, and in Ohio, down 41.3 percent. But in Kansas, which slashed rates in 2013, revenue was up 23 percent.

Seven states – Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming – collect no income tax, and two – New Hampshire and Tennessee – only levy taxes on dividend and interest income, but not wages.

(Reporting by Karen Pierog; additional reporting by Hilary Russ, Robin Respaut, Rory Carroll and Edward Krudy; editing by Daniel Bases and G Crosse)

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