According to the Center on Budget Policies and Priorities, 31 states are projected to have a $55 billion revenue shortfall for fiscal 2013. This is smaller than in the past, but it is still extremely large by historical standards. This short fall is likely caused by a revenue shortfalls from the slow economy and increased spending needs on current state projects and those projects where federal funding has ended and the states are not expected to pick up the tab themselves. The states with the most significant shortfalls are California, Nevada, Oregon, Texas, Minnesota, and New Jersey. Other suffering states include most of the east-coast and New England area. Also hard hit is Arizona.
So what does this mean to you? If you are in these states you can expect to see higher taxes and more cuts in state services. You can also expect to see more audits and more assessments of tax. You should also expect to see an expansion of the sales tax base to include the taxation of more services and also an uptick in state tax audits.
I’ve been talking about revenue shortfalls for the past 5 years and there is scant evidence to suggest that the situation is improving at all. If we hit another recession in 2013 or the economy continues to grow at the anemic rate of 1.5%, then we are in for a very long and painful state revenue shortfall. This will continue to put pressure on state legislatures and audit groups.
Ned Lenhart, CPA