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Jun 27

Sales Tax Distribution Report & Advice

Posted on June 27, 2016 at 3:36 PM by Paige Worsham

June 2016
April 2016 Collections -- June 2016 Distributions

April 2016 was a very good month for sales tax collections statewide. According to the NC Department of Revenue, local collections for this period were $259.56 million. This is a 21.2% surge over the previous month and a 22.1% increase over the same period last year (April 2015). These are the largest numbers we have seen since the January holiday shopping collections.

Of course, these numbers include the expansion of the sales tax base to some new services, effective March 1, 2016. This expansion includes taxation of the repair, maintenance, and installation of tangible personal property, the purchase of which is subject to the sales tax. 

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 Unfortunately, because of the way the collections data is submitted to the NC Department of Revenue, we do not know exactly how much of this increase in collections is linked to the base expansion. But it is likely a substantial part of the equation.


Federal Reserve Predictions for Continuing Strength

As we noted last month, the Federal Reserve Bank of Atlanta has developed a new GDPNow economic forecasting model. This model offers a “nowcast” of their economist’s best guess as to economic activity each week, from a national perspective. As of May 31, the model indicates 2.9% for real GDP growth (seasonally adjusted) for the second quarter of 2016. While this is unchanged from the previous week, it is a significant increase from the model’s initial forecast for the quarter of 1.8%, back in April.


The elements driving this GDP growth make the news particularly positive news for county governments. According to the same model, some of the key drivers are consumer spending and residential investment, both of which are good for local government bottom lines. Moreover, at the national level at least, the outlook for May and June collections (July and August distributions) remains very positive.


However, the Richmond Federal Reserve Bank (district includes North Carolina), projects a slightly different picture. Their monthly survey of service sector activity indicates that retail sales in our area actually flattened in May, after four months of solid growth. This flattening may be related to a substantial decline in big-ticket items, and an increase in retail inventories. This less dramatic growth seems to have dampened business spirits in the Carolinas in particular, where investments in business software and equipment slowed. Carolina respondents to the regional business survey also indicated that, while they expect to continue to hire at a steady rate, they did slow employee expansion in May.

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This slightly less positive outlook is having an impact on business hiring plans in our region. This time each year the Richmond Fed surveys businesses about their hiring plans. The results of this month’s survey, compared to last year’s survey, can be found below.

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This reported decline in hiring intentions, and small increase in staff reduction plans, again reflect a more tempered view of the economic future in the Carolinas.

Going into summer and fall collections, it will be interesting to watch what impact last year’s base expansion changes will have on the overall local sales tax base. The legislative Fiscal Research Division staff has revised their sales tax projections upward, in part because of larger than initially expected revenues from this policy change. Only the future will tell how much of this uptick is a result of the base expansion, an anomaly, or some other factors.

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