U.S. states worry about weakening sales tax collections

WASHINGTON Tue Feb 12, 2013 5:21pm EST

WASHINGTON (Reuters) - Only about a third of U.S. states were on target for their sales tax collections in January, part of a trend that has some officials worried, an economic newsletter, The Liscio Report, said on Tuesday.

All but five states collect sales taxes, and for those that do, the surcharges on purchases can provide a solid revenue source.

January's sales tax collections were slightly lower than December's, when 37 percent of states said they had met expectations. Revenues that consistently come in below expectations can force states to cut spending - all states except Vermont must end their fiscal years with balanced budgets.

However, the growth in sales tax collections in January was up 2.4 percent from the year before, Liscio said.

"A few contacts were relieved to see sales collections pick up in January, but the majority continued to express growing concern," the newsletter found, adding there was no geographical pattern of performance in the survey.

The federal tax break that put extra dollars into middle class Americans' paychecks expired in January, and some economists warned that would leave shoppers with less money.

A report from the federal government on Wednesday is likely to show that retail sales were close to flat in January, with analysts polled by Reuters expecting them to have increased 0.1 percent.

Sales taxes in general have become a growing source of revenues for states in recent years. The $58.97 billion they collected in the third quarter of 2012 was the largest total for that quarter on records going back to 1992, according to U.S. Census data. It was also about a third of the total tax revenues all states brought in during the quarter.

But many states say they are still missing out on millions of dollars in revenue because they are unable to collect online sales taxes. Florida is debating a bill to tax online transactions that proponents say could bring the state more than $400 million.

Last year, California voters turned to raising the sales tax to help cure the state's long-standing budget problems. That resulted in California charging the highest state sales tax rate in the country, 7.5 percent, the Tax Foundation said in a special report released on Monday.

Of those states that collect sales tax, Colorado has the lowest rate at 2.9 percent, the report said. But the average sales tax rate charged at the local level in Colorado is one of the highest in the nation.

(Reporting by Lisa Lambert; Editing by Leslie Gevirtz)

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