Total state government tax revenue collections rose by 4.5 percent in nominal terms and 1.8 percent in real terms in the fourth quarter of 2023 relative to a year earlier. Personal income tax revenues increased by 5.9 percent and corporate income tax revenues increased by 6.7 percent in real terms in the fourth quarter of 2023 compared relative to a year earlier. However, this national growth was primarily driven by California, where income tax revenues surged largely due to the extension of the income tax filing deadline from April 2023 to November 2023. Inflation-adjusted sales tax collections decreased 1.3 percent while motor fuel tax collections increased 3.9 percent in the fourth quarter of 2023 relative to a year earlier.

Preliminary data for the first quarter of 2024 suggest ongoing sluggishness in overall state tax revenue collections, primarily due to continued weakness in personal income tax revenues. Total state tax revenues increased 1.9 percent in nominal terms in the first quarter of 2024 compared with the same period in 2023, with the median state growth at 1.3 percent.

The fiscal outlook for state and local governments remains uncertain, with potential risks stemming from economic fluctuations and policy changes. If revenue collections deteriorate further, state policymakers will need to take additional steps to ensure stable and sustainable revenue streams for the upcoming fiscal year and beyond.