Size of income tax drop surprises U.S. states: study

WASHINGTON Thu Jun 12, 2014 3:22pm EDT

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WASHINGTON (Reuters) - Most U.S. states were surprised by the size of the drop in their personal income tax collections this April, even though they had expected a decline, according to a report released by the Rockefeller Institute of Government on Thursday.

Personal income tax revenues in April were 15.8 percent, or $7.9 billion, below the same month in 2013, according to preliminary estimates from Rockefeller, a public policy research group at the State University of New York. April is a key tax collection month because of the federal tax filing deadline.

From January through April income tax collections fell 7.1 percent from the same period in 2013, Rockefeller found. Out of the 38 states for which data is available 33 registered declines. Altogether 41 states collect personal income taxes.

At the end of 2012 taxpayers had reacted to impending changes in the federal tax code by selling off investments or otherwise "accelerating" their income to take advantage of lower levies. That boosted personal income tax collections for states last year, but the bulge ended this year.

"It was extremely difficult for states to forecast personal income tax collections as it was hard to sort out the impact of income acceleration," Rockefeller found. "While many states tried to be cautious in their forecasts, early figures indicate that income tax collections are below the forecasts in many states."

Because income tax collections were lower than expected, states could have to cut revenue forecasts for the budgets they are currently finalizing.

From January through April, Ohio registered the largest income tax drop from the same period a year earlier, at 31.1 percent, followed by North Dakota at 28.1 percent and Kansas at 24 percent. The large declines were also caused by legislated tax changes.

Oregon experienced the largest increase, 8.8 percent, fueled by job growth, and was closely followed by Oklahoma at 7.3 percent.

(Reporting by Lisa Lambert; Editing by Lisa Shumaker)

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