State of the Facts
Like many businesses in the COVID-19 pandemic, states took a significant hit to incomes in 2020. In the second quarter of 2020 — or April through June — state tax collections dropped 29% compared to the same quarter in 2019. One reason for this is that many states, along with the federal government, shifted their income tax filing deadlines from spring to summer of 2020 — or from the second to third quarter — in response to the pandemic. But not all second quarter losses were due to the income tax delay: states also experienced declines in revenue from sources like sales and gas taxes as a result of social distancing and lockdowns.
Data from the third quarter — July through September — shows state tax collections rebounded compared to the second quarter, in part because some states collected that delayed income tax revenue. But during the first three quarters of 2020 combined, total state tax revenue was still down 4.4% compared to the same period in 2019.
States collected $306.7 billion in tax revenue between July and September, up 19.6% compared to the same quarter of 2019, according to data from the Census Bureau. But much of the year-over-year increase can be explained by the shift in income tax deadlines from spring to summer of last year. Combined individual and corporate income tax revenue was up by $49.7 billion in the third quarter of 2020 compared to the same period in 2019, nearly equal to the $50.2 billion total increase in tax revenue across the same two quarters. Data on the fourth quarter will be released in March.
Comparing the first three quarters of 2020 to the same time period in 2019 gives a fuller picture of how the pandemic affected state revenues. Total state tax revenue was down by $37.5 billion, or 4.4%, in the first nine months of 2020 compared to the same period in 2019. Reasons for this decline include a nationwide drop of 9.9% in corporate tax revenue; a 4.1% drop in sales tax revenue; and a 3.1% drop in personal income tax revenue. Meanwhile, revenue from property taxes and insurance premium sales taxes increased over the period — with each up by more than 3% — but because these taxes make up a small share of total state tax revenue, this didn’t offset the losses in other tax categories much.
Three states reported more than 20% declines in total tax revenue during the first nine months of 2020 compared to the same period in 2019: Alaska had a 25.8% drop, followed by Connecticut (-25.4%), and North Dakota (-22.7%). Hawaii nearly joined this group, recording a 19% drop in total tax revenues. In Alaska and North Dakota, reduced revenue from severance taxes — or taxes levied on natural resource extraction — played a large role in the overall drop.
Still, some states reported increases in tax revenue over the first three quarters, with Idaho reporting the largest percent increase at 12.2%.
Four states experienced individual income tax declines exceeding 20% in the first three quarters: New Mexico (-30.2%), Tennessee (-29%), Connecticut (-28.2%), and Utah (-25.4%). Only one state, Arkansas (+23.3%), reported an increase of more than 20% in personal income tax revenue.
Fourteen states reported corporate income tax revenue declines in excess of 20%. Hawaii reported an 87.7% decline in its corporate tax revenues in the first three quarters of 2020 compared to the same period in 2019.
By contrast, no states saw corporate tax receipts increase by 20% or more in 2020. Missouri, which got closest, had a 19.8% increase in corporate tax receipts over the first three quarters of 2020 as compared to the first three quarters of 2019.
As the coronavirus curtailed travel, nationwide gas tax receipts also declined in the first three quarters of 2020, relative to 2019. Overall, gas tax revenue receipts declined by 6.3% nationwide. Three states reported gas tax revenue declines of over 20%: Washington (-29.8%), Michigan (-24.9%), and Louisiana (-20.8%).
For more data on government spending and revenue during the pandemic, along with other economic and health-related indicators, visit the COVID-19 Impact and Recovery Hub.
Keep up with the latest data and most popular content.