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Jan 12

Sales Tax Distribution Report & Advice

Posted on January 12, 2016 at 11:52 AM by Paige Worsham

January 5, 2016 Report

The January report from NCDOR indicates that local sales tax collections overall declined 6.18% over the previous month, or $14,573,472.


Unlike the previous few months, most of the change (in this case, downward) was driven by the Articles that include food in the base, namely Articles 39, 40, and 42.


Outlook for 2016

In his quarterly economic forecast, Dr. John Connaughton (UNC-Charlotte’s Belk College of Business) suggests that for 2016 our state will continue to experience small but continued economic growth, in the neighborhood of 2.5% over 2015. This is slightly less than the 2.9% he predicts will be the final growth rate for 2015.

“Positive economic growth in 2016 would represent the seventh consecutive year of economic growth for the North Carolina economy. While this is an impressive string of growth, the size of that economic growth has been somewhat lacking. Average real GSP growth during the seven year period would only be 1.8 percent. Since 2000, both the U.S. and North Carolina economies have been unable to achieve an average 3.0 GDP growth rate that had been fairly consistent since WWII”. He suggests that an aging labor force (retirement tends to reduce spending), and a shrinking labor force (adding less to the economic base) are part of what is driving what may be a long term trend towards lower growth.

On a more positive note, Dr. Connaughton offers that by December 2016, the North Carolina unemployment rate is expected to have dropped to a steady 5.5%.

Dr. Mike Walden of NC State offered similar news. In his analysis of North Carolina Leading Economic Indicators he states, “All year (2015) the Index showed little movement, suggesting economic growth will continue in 2016 at the current rate.” He also proposes that, depending on the dollar’s international value in 2016, we may experience a reduction in North Carolina factory outputs.

All of this matches well with the previously reported statement from Wells Fargo that the US economy will become more stable in 2016 with growth between 2.5% and 2.6%.

So What Does this Mean for 2016 Sales Tax?

According to Dr. Connaughton’s analysis, it appears that slow and steady may be the order of the day. While we are expecting continued moderate growth in the Gross State Product (GSP), it will be small. Moreover, much of the growth will once again be in areas that can be outside the sales tax base. For example, Business and Professional Services are expected to show the strongest growth in 2016, at 4.5%.

The sales tax base expansion to include repair, maintenance and installation services takes effect March 1, with distribution to a subset of counties starting July 1, 2016.
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