By Martha Heberlein

According to a new report from the Rockefeller Institute of Government, total state tax revenues grew for the 7th straight quarter. Comparing the 3rd quarters of 2011 and 2010, total tax revenues increased by about 6%. Nearly every state (save Alabama, California, and Delaware) saw increases in total tax revenue, with 12 states seeing double-digit increases.

Sales and personal income taxes, two major sources of state revenues, also saw increases of about 10% and 4%, respectively, in the July-September 2011 quarter. The gains in personal income tax were widespread – all of the 41 states with an income tax reported growth and 13 saw a double-digit increase. Similarly, 41 of the 45 states with a broad-based sales tax saw growth; 6 of them experienced double-digit increases.

Despite the welcome news that taxes have rebounded over the last two years, overall tax collections remain weak historically. Nationwide, tax revenues were still 3.5% below peak levels, but were above pre-recession levels. But there are positive signs that revenues are turning the corner as 13 states reported collections that were higher than their previous peak and preliminary data suggest that tax conditions continued to improve in the 4th quarter of 2011.

Most sources of state revenue are shaped by the economy as a whole. If more people are out of work, income taxes fall. If family budgets are stretched thin, sales taxes plummet as they consume less. Sales and income taxes make up two-thirds of state tax revenue and during the recent recession declines in these taxes were steeper than had been seen in previous economic downturns, having a dramatic effect on state budgets. As the overall economy continues to improve (albeit, predictions say it will likely continue to be a slow recovery), state revenues can also expect to grow.