TAX NEWS - JUNE 2010

Louisiana Tax: Tax Collection in Louisiana Fell Sharply in First Quarter

by MICHAEL COOPER, 02 June 2010, NEW ORLEANS -- Most states continued to collect less in taxes during the first three months of the year than they did during the same period last year, with the steepest decline here in Louisiana, a report on state taxes to be released Thursday finds.

Total tax collections in Louisiana fell by a third during the first three months of the year compared with the same period last year, according to the report, an analysis of preliminary tax data by the Nelson A. Rockefeller Institute of Government. The drop-off came even before the oil spill began wreaking havoc with the state's coastal economy.

Louisiana was one of 34 states that collected less in taxes during the period, a troubling sign that the lingering effects of the economic downturn will continue to erode state finances for some time.

Over all, state tax collections around the country grew by 2.4 percent during the quarter when compared with the same period last year, the report found — the first year-over-year increase in collections since the summer of 2008. But the report cautioned that the growth was largely because of tax increases enacted in New York and California, rather than a sign that an economic recovery was beginning to fill state treasuries.

Even with the slight growth, states were still collecting significantly less money than they were before the recession, the report found. The $138 billion that was collected during the first quarter of this year represented a decline of 10.9 percent from the same period two years ago, when the states collected a total of $154.8 billion in taxes, the report found.

"Most states will continue coping with budget gaps for quite some time," said the report, which was written by Lucy Dadayan.

Things could soon get worse for states that are heavily dependent on personal income taxes: the report said that preliminary data suggest that many states will face big declines in income tax collections from April to June, on top of the steep declines they faced a year ago. The report warned that many states whose fiscal year ends on June 30 could be forced to take "hasty actions" to deal with shortfalls, and suggested that further tax increases, spending cuts and layoffs could be in the offing.

Sales tax collections rose by a slight 0.5 percent during the quarter compared with the previous year, but that was partly because of states that raised sales taxes, including Massachusetts and California. Thirty-seven states reported collecting less in sales tax during the quarter compared with the same period last year, the report said.

The erosion of tax receipts in Louisiana was due in part to reduced collections of taxes linked to the gas and oil industries, even before the oil spill in April, the report said. The state has also cut a number of tax rates, and is grappling with the recession. A sharp downturn resulted during the first three months of the year: sales tax collections were down 20 percent, personal income tax collections were down 54 percent, and corporate taxes, which are often volatile, were down nearly 120 percent, according to the report.

In mid-April, Louisiana's Legislative Fiscal Office, an independent agency, warned that the national recession was hitting the state "in a big way" and said that dwindling tax collections had opened a $319 million hole in the current year's budget. A few days later the Deepwater Horizon oil rig exploded, spilling oil into the Gulf of Mexico and raising new questions about the state's economic outlook.