State Tax and Economic Review, 2023 Quarter 1

Total state government tax revenue collections declined 6.8 percent in nominal terms and 11.5 percent in real terms in the first quarter of 2023 relative to a year earlier. Growth rates varied considerably among major revenue sources. Personal income tax revenues declined 22.5 percent, corporate income tax revenues declined 29.2 percent, and sales tax revenues increased 0.7 percent in real terms in the first quarter of 2023 compared with the same quarter in 2022.

Preliminary data for the second quarter of 2023 indicate double digit declines in overall state tax revenue collections, largely driven by steep declines in personal income tax revenues. The declines in personal income tax revenues were expected given a weaker stock market and state policy actions that included tax rate cuts and rebate payments. Total state tax revenues increased in 10 states in nominal terms, while 35 states reported year-over-year declines for the second quarter of 2023.

States’ fiscal path forward remains highly uncertain, particularly for states that chose to enact permanent tax rate cuts. The revenue boom of fiscal years 2021 and 2022 is unlikely to be repeated. Large surpluses are helping ease the transition to slower revenue growth. But those resources will soon run out, forcing states to again grapple with the need for more revenue or spending cuts in the coming years.