States are facing unprecedented revenue losses in the wake of COVID-19, although state experts disagree on the extent of the crisis.
In May, every state with available data reported a decline in sales tax revenue compared to the prior year, ranging from a 51 percent drop in Washington, DC to a one percent drop in South Dakota.
Though exact revenue estimates may differ, policy analysts and economists agree that states are facing unprecedented revenue losses as a result of COVID-19. It’s difficult to predict the exact magnitude of the fiscal crisis, however, because there are many unknown factors: will there be a second wave? How quickly will consumers feel confident returning to normal activities? Will states receive additional federal funding?
(It is important to note, when reviewing state revenue estimates, a significant portion of the “lost” revenue is due to the delay in tax filing and payment extensions. Those taxes are still due, and will largely be recouped by states in coming months, just later in the year than they are typically collected. Hence our focus on sales tax revenues, which are not impacted by these income tax filing shifts.)
One metric we can review to begin to understand the full impact of coronavirus on state revenues is monthly sales tax collections. Sales tax collections can serve as a proxy to understanding consumer activity/confidence and provide some insight into the economy as a whole. We reviewed monthly sales tax revenue by state in May 2019 and May 2020. The map below illustrates the percentage change in sales tax revenue between May 2019 and May 2020.
As always when collecting state data, states differ in their approach and timing when reporting tax revenues. The states in light gray have not yet released their monthly sales tax numbers (or have a significant data lag), and states in dark gray do not levy a statewide sales tax. Lighter blue states represent a smaller change in state sales tax revenues, while dark blue states represent bigger revenue losses.
The May numbers in this report are considerably worse than the April sales tax revenue numbers. We analyzed April 2019 v. 2020 sales tax data as well, and found that several states were facing smaller sales tax revenue declines than in April than in May (though the data does vary).
Overall, every state is facing revenue challenges. In the month of May, every state that has released revenue data suffered a decline in sales taxes, despite the fact that some states began to reopen in May.
As states grapple with revenue uncertainty, it’s unlikely that legislators will act quickly to address deficits, particularly when we don’t yet have clear revenue pictures. However, sales taxes are one measure that can provide some insight on how serious state budget situations might shape up to be.
MultiState continues to monitor the fiscal impact of COVID-19 on state budget and tax policy. Please contact us with any state-specific questions. Bookmark our COVID-19 Policy Tracker and Dashboard here, which monitors coronavirus response by state: multistate.us/pages/covid-19-policy-tracker.