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States' sales tax growth slows in June: report

WASHINGTON (Reuters) - State sales tax revenues grew slowly in June, with an average gain of only 2.1 percent, according to a report released on Wednesday, suggesting a weakening trend that could threaten states' recoveries.

Only 58 percent of states met or exceeded their forecast sales tax collections in June, compared with 82 percent in May, according to the economic newsletter The Liscio Report, which surveys states about their tax levels.

The 2.1 percent average year-on-year growth in June was down from growth of 4.9 percent in May, the Liscio Report showed.

"Even if you average the two months, there is no doubt that state sales tax receipts are in a slowing trend, outside the states with heavy energy extraction sectors, which are currently maintaining high single-digit growth rates," the newsletter said.

Revenue forecasts are crucial to states' fiscal planning because all states except Vermont must balance their budgets. During the worst of the 2007-2009 recession, revenues came in below already depressed forecasts, forcing states to make emergency spending cuts in almost all areas of public life.

As states crawl back from the collapse in revenue and budget crises, income tax revenues are providing the biggest boon. Last week, Liscio reported 77 percent of states hit the mark on collections from income tax withholdings in June.

For the fiscal year that ended for almost all the states last month, tax collections beat expectations in at least 28 states, almost all because of gains in revenue from taxes on investments and corporate income, according to the Center on Budget and Policy Priorities, a think-tank tracking states' fiscal conditions.

CBPP said that in those states personal income tax revenues grew 9 percent over the year, more than double the growth rate they had forecast. Meanwhile, sales taxes increased 4.4 percent, 1.5 percentage points above projections.

Sales taxes made up less than a quarter of state and local governments' revenues in the first quarter of the year, according to the U.S. Census Bureau, rising to $73.7 billion from $69.7 billion in the first quarter of 2010.

But they remain below levels in the first quarter of 2007, before the housing bubble burst and the country fell into recession, according to the Census Bureau.

The Liscio Report said that factors such as timing boosted May's collections and the "somewhat alarming decline between May and June may be overdone." There are other "noisy" elements to revenue data, it said.

"But beneath the noise, the weakening trend is clearly visible," it added.

(Reporting by Lisa Lambert; Editing by Leslie Adler)

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