Early indications are that most states continued the recent trend of strong growth in tax collections in April, led by gains in personal income taxes. States saw growth in payroll withholding, estimated and final tax payments in April. The gains are likely due to several factors including employment growth, salary increases, and strong stock market performance in 2021. Similarly, most states also reported increases in corporate income taxes due to higher corporate profits. Part of the year-over-year increase in income taxes is due to 2021’s tax deadline being pushed back to May, which led to less April tax collections last year. However, in addition to seeing strong year-over-year gains, most states are also reporting tax collections are exceeding forecasts, which had already accounted for the tax deadline shift. Many states also reported that sales tax collections exceeded forecasts in April, partly due to increased consumer spending and the impact of inflation on prices. The performance of other smaller revenue sources was mixed. For example, some states reported declines in transportation revenue due to pauses in gas taxes, while severance tax states saw increases from rising oil and gas prices.
Most states are now projecting to end fiscal 2022 with a budget surplus and will work to determine the best use of the surplus funds. States are likely to use the surplus funds to continue to build up rainy day funds, make one-time investments, and support spending priorities in fiscal 2023 budgets. States will also closely monitor the impact on future revenue collections from changes in the economic outlook due to inflation, workforce shortages, geopolitical events, COVID-19, and other factors.
Resources
Below is a compilation of recent press articles detailing states’ April revenue collections. In addition, please access updated state revenue forecasts on NASBO’s website.