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Nov 24

Sales Tax Distribution Report & Advice

Posted on November 24, 2017 at 7:41 PM by Paige Worsham

November 2017
September 2017 Collections - November 2017 Distributions
Linda S. Millsaps

In November, North Carolina local governments are expected to receive $273.87 million in sales tax distributions. This is a $5.01 million decrease from the previous month but is still substantially above collections this time in 2015 and 2016. In total local governments have received $22.54 million more from the first eleven months of 2017 than they did for the same time period of 2017.


This month again shows the volatility of the monthly local sales tax distributions. Over the first eleven months of the year, monthly sales tax distributions have increased an average of 8.4% over the same month the previous year. This month, however, the increase was only 4.3%.


You will notice that with this analysis we shifted from showing a collections basis to a distribution basis. After discussion with several county budget and finance staff, it was determined that this would be more useful for county accounting. As you know, there is a substantial lag between collections and distribution due to processing. In addition, sales taxes are actually submitted to the state monthly, quarterly, or in the case of very large taxpayers, monthly with an accelerated pre-payment. So referring to a single collection month may not be completely accurate. All the historic numbers in this report have been adjusted to account for the change. We hope you find the shift helpful.

The Current Economic Situation

This week we had a very good jobs report. According to the NC Department of Commerce, in September all 100 counties experienced a decline in unemployment over the same time last year. Buncombe continues to boast the lowest unemployment rate at 3.1%. The highest rates were in Scotland (6.9%), Edgecombe (6.7%), Halifax (6.7%), Wilson (6.3%) and Warren (6.2%). Most exciting is that 42 counties saw better than a full percentage decline, including these same five counties. This is excellent news as it suggests that the state’s more urban concentrated job growth has started to spread to our more rural areas.

What is also interesting about the data is the year over year shift in the industries experiencing growth and contraction. As the chart below suggests, we continue to see significant growth in the areas of both professional and business services, as well as education and health services. This is good news as these industries tend to have strong wage scales, which assists the local economy. Unfortunately, we are actually seeing shrinkage in the information and construction sectors, and well beyond the national average. These have historically been good job drivers for North Carolina.


In other economic news, mortgage delinquencies have reached their lowest point since 2007, and non-business bankruptcies are down a very significant 7.19% since the 3rd quarter of 2016. Housing permitting continues to be highly volatile, with the newest data showing a decline. And there has been a reduction in the labor force participation rate.

All of these indicators combined suggest North Carolina economic growth is continuing but is beginning to shift industries and regions from heavy technology and urban-driven to more evenly distributed.

Looking Ahead

While the current numbers appear fairly rosy, our state’s business leaders and economists are a little less optimistic about the next six months. The Carolinas Survey of Business Activity shows a very significant decline in business leaders’ view of general business conditions six months from now. This is likely driven, at least in part, by an expectation that the price of inputs will increase with no corresponding growth in their own sales prices. Dr. Mike Walden’s work also shows that the forecast of the state economy for the next four to six months is “down modestly.” This shift was driven primarily by the reduction in housing permits. Roundly there is a discussion about the impact a new Federal Reserve Chair and potential movement (or no movement) on a tax package may have on the outlook as well.

New: Veterans Can Purchase through DoD

The Department of Defense announced a policy change that will potentially impact some local tax bases. Currently active duty military, their immediate families, retirees, gold star widows and a few others can make purchases, tax free, through the base Army and Air Force Exchange Service or AAFES. A similar organization, the Navy Exchange or NEX is available on Navy bases. This same group of service members and retirees can use the on-line versions of the Exchanges. Effective this Veterans Day (November 11, 2017) any honorably discharged veteran will be able to access the on-line Exchanges and make tax free purchases. This expansion does not apply to brick and mortar shopping. The move is designed to increase funding available for military Morale, Welfare, and Recreation programming. Over time some areas may see a small loss of sales tax revenues if our approximately 700,00 veterans begin to use the online portal.

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