Posted on May 26th, 2021

When the Comptroller released initial reports of 31.4% growth for sales taxes generated in March 2021, city managers across the state started licking their chops for the local data to be released. The Comptroller's press released cited base effects stemming from the economic closures that began in mid-March 2020 as the proximate cause for the massive uptick.

Part of the growth over last year is from depressed collections that began last April, especially from retail trade, restaurants, entertainment and other hospitality businesses most immediately impacted by the COVID-19 pandemic. Spending this March affecting April tax collections was supported by widespread business reopenings and the lifting of capacity restrictions, greater consumer confidence in going out as the vaccine rollout progressed, federal stimulus checks and spending delayed from February into March due to the winter storm and power outage.

If the Comptroller is right that delayed spending from the winter storm in February contributed to the significant growth in March consumption, it's likely that the impact of this would be minimal. The storm occurred in the middle of the month, leaving ample time to recover from routine spending that would have occurred. It's possible, perhaps, that delayed shopping occurred in the form of Valentine's Day dinners and gifts, though the impact of this is probably negligible.

But, as the Comptroller notes, March 2021 consumption figures represented an increase of more than 19% over March 2019. That's an absolutely ridiculous number for statewide totals. Based on an initial review of data from more than 140 cities across the state, we found two areas that you might want to dig into before projecting your May 2021 sales tax allocations into next year, and both have to do with the winter storm that occurred in February.

First, cities with sales tax on residential electric and natural gas will want to look at the revenue generated from those taxpayers in May's allocations. Our review found significant year-over-year increases in May (as much as 30-50% for larger providers, and as high as 100-200% increases for smaller providers). During the winter storm in February, energy prices soared, and many residential electric customers faced rolling blackouts that required significant energy usage as their heating systems stopped and restarted over the course of that week. But the higher costs associated with these effects may not have been felt until March due to delayed billing cycles. Be careful not to count on those increases next year.

Second, look out for increases in your sales tax related to repairs and insurance claims. We've seen several cities with large payments that appear to be related to repairs, possibly tied to damage caused by the winter storm.

In March 2020, which included two weeks of Covid related economic closures, sales tax dipped by only 9.3% across the state. Base effects notwithstanding, 31% year-over-year growth suggests there was more going on than just a rebound from 2020. Before you finalize your FY22 sales tax projections, it might be worth a deep-dive into May's allocation data to make sure you know exactly where your growth came from.

Finding this information in your confidential sales tax reports is tough. ZacTax makes it easy as pie.

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