Declining state sales tax revenue from March hints at larger deficits ahead

TEXAS — State sales tax revenue totaled $2.58 billion in April, 9.3 percent less than in April 2019, the steepest decline since January 2010, according to Texas Comptroller Glenn Hegar.

In Presidio, city sales and use tax is declining as well, with net payments for this period down 5.01 percent from the prior year, and year-to-date payments already down 5.45 percent. It was worse in neighboring Marfa, where net payments for this period dropped 6.75 percent from the prior year and year-to-date payments fell 14.67 percent.

The majority of April sales tax revenue is based on sales made in March and remitted to the agency in April. Widespread social-distancing requirements were not in place across much of the state until late March, meaning the impact of those measures affected only a portion of sales tax remittances in April.

According to the comptroller, next month’s remittances likely will show steeper declines compared to a year ago, as the effects of both the shuttering of businesses related to COVID-19 and plummeting oil prices were manifest throughout April.

“State sales tax collections declined as a result of efforts to stem the spread of COVID-19 through business closures, crowd limits and stay-at-home orders adopted in the state, as well as a precipitous drop in worldwide demand for oil,” Hegar said.

“The steepest declines in tax remittances were from businesses most quickly and dramatically affected by social distancing: restaurants, performing arts venues, movie theaters, theme parks and fitness centers, as well as department stores and boutique retail shops. However, those losses were, to a degree, offset by increases from big-box retailers, grocery stores and online vendors. Remittances from oil- and gas-related sectors also fell significantly as oil and gas exploration and production companies slashed capital spending in response to the crash in oil price.”

Sales tax is the largest source of state funding for the state budget, accounting for 57 percent of all tax collections. It can also be a lagging indicator of economic slowdowns. The recession associated with the financial crisis more than a decade ago began in December 2007 and lasted 18 months, but Texas did not see significant sales tax declines until early 2009. While the effect on sales taxes from the current economic contraction has been more immediate, the impact of rising unemployment and contracting economic activity in many parts of the state’s economy, including oil and natural gas exploration and production, likely will act as a drag on sales tax revenue for many months.

The effects of the March economic slowdown and falling oil prices were more evident in other sources of revenue in April 2020. Texas collected the following revenue from other major taxes: motor vehicle sales and rental taxes — $164 million, down 45 percent from April 2019, the largest monthly drop on record in data going back to 1983; motor fuel taxes — $284 million, down 12 percent from April 2019, the steepest drop since 1991; natural gas production tax — $67 million, down 48 percent from April 2019; oil production tax — $191 million, down 45 percent from April 2019; hotel occupancy tax — $24 million, down 63 percent from April 2019, the deepest drop in data going back to 1990; and alcoholic beverage taxes — $57 million, down 55 percent from April 2019.

Declines were driven by mixed beverage gross receipts and sales taxes, both of which are down more than 58 percent. Excise taxes on beer are up 16 percent from April 2019, while wine excise taxes are up 9 percent from April 2019.


 
Related