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Many states miss targets for withheld taxes in April

WASHINGTON (Reuters) - Only about half of states collected as much in tax withholdings as they expected in April, even though collections grew 3.6 percent on average from a year-ago, according to data released on Friday

The Liscio Report, an economic newsletter, said that the percentage of states that met their expectations for tax withholdings rate in April compared to more than 80 percent of states in March.

April is typically a key month for the taxes withheld from employees' paychecks and paid directly to the government.

State withholding collections this year, however, have been affected because many companies and individuals late last year sold off investments or made other financial moves to avoid potentially steep tax bills in the new year due to expectations that certain lower tax rates would expire at the end of 2012.

"In the past, March and April would have included bonus-based collections, which were largely accelerated into 2012, so although our contacts are concerned about April's weakness, they are also aware that they have been through a few years of weak collections in spring and summer, and are taking that sensible 'wait and see' attitude," the newsletter said.

President Barack Obama and the U.S. Congress decided to extend many of the tax breaks in their deal on avoiding the "fiscal cliff."

State revenues are now surpassing the peaks they reached before the recession, largely on growth in personal income taxes. Investors in the $3.7 trillion municipal bond market regard the increases as good news.

"In our view, this growth trend is positive for overall municipal credit quality, although isolated risks still remain," said U.S. Trust in a special report on tax-exempt fixed income this week.

(Reporting by Lisa Lambert; Editing by Leslie Adler)

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