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States Face Sales Tax Revenue Loss Amid COVID-19 Pandemic

Posted on Mar. 31, 2020

States that are heavily reliant on sales tax revenue are taking an immediate hit with stay-at-home orders, despite enacting fiscal measures in response to the COVID-19 pandemic.

State legislatures have been making supplemental appropriations and dipping into their rainy day funds as a fiscal response to COVID-19, but states can still expect to see significant revenue loss, Erica MacKellar of the National Conference of State Legislatures’ Fiscal Program said March 30 on an NCSL podcast.

According to MacKellar, the American economy shutdown could have a big effect on state revenues, depending on how long the stay-at-home orders and the shutdowns last. Many states are hoping to revise their revenue estimates in April or May, but that still might be too early for states to really know what the economic impact will look like, and those revisions could be complicated by extended filing deadlines, she said.

“That could have the effect of pushing revenue that states expected for fiscal year 2020 into fiscal year 2021,” MacKellar said on the podcast.

Vermont, California, and New York have already estimated significant revenue loss because of the pandemic, MacKellar said, adding that states that rely on personal income tax collections will see a dip in expected revenue because of the filing extensions. States that rely heavily on tourism for a large part of their budgets, like Hawaii, could be hit hard because of quarantine measures, MacKellar said.

Noting that half the states have already passed their 2021 budgets, MacKellar said she expects to see a lot of special sessions this summer to reconcile those budgets with the revenue reality brought by the pandemic.

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