TAX NEWS - June 2010

Sales tax revenue healthy in many US states report

Many U.S. states met or exceeded their forecasts for sales tax collections in May and a few are seeing signs of sustained improvement, according to an economic newsletter report released on Thursday.

According to the Liscio Report, 69 percent of the states it surveyed met or exceeded their forecasted sales tax collections last month. This was a smaller proportion than in April, when retail sales were stronger. Nearly 85 percent reported growth in collections compared to May 2009.

"Our contacts around the country report that spending is quite broad-based and, so far, encouraging," the newsletter said.

After the recession that began in 2007 created a collapse in state revenue, many have been anxious to see tax collections meet expectations at the least.

However, the encouraging signs do not herald a trend in many states and only only a few small states "believe they now see sustainable improvement," the Liscio Report added.

"Their expectations remain for a long, slow and uneven recovery," the newsletter said.

Typically, economic recoveries in states lag national ones, and states are bracing for an especially hard time as the unprecedented amount of aid under the federal stimulus plan trickles away. Most of the help from the $863 billion plan will end by December.

States are currently pushing for some of that aid, which was the largest transfer of federal funds to states in the history of the country, to be extended by six months so that they can survive fiscal 2011.

For most states the new fiscal year starts in less than a month and they are scrambling to plug budget gaps by cutting spending and laying off workers. All states except Vermont must end their fiscal years with balanced budgets.

The fate of any stimulus funding extensions is uncertain. A measure to continue extra funds for Medicaid, the healthcare program for the poor that makes up 20 percent of state budgets on average, failed in the U.S. House of Representatives recently. One to extend education funds was scratched in the Senate last month.