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Dec 22

Sales Tax Distribution Report & Advice

Posted on December 22, 2017 at 1:03 PM by Paige Worsham

December 2017
October 2017 Collections - December 2017 Distributions
Linda S. Millsaps

In December, North Carolina local governments are expected to receive $281.17 million in sales tax distributions. This is a $7.30 million increase from the previous month and is substantially above collections this time in both 2015 and 2016. In total, local governments have received $252.12 million more in sales tax distributions in 2017 than they did in 2016. That is an increase of 8.49%, year over year.


And again the variability in the sales tax, on a year over year basis, is very high. As the graph below indicates, over the past two years the month over month change has varied from as low as 2.4% in August to a high of 14.2% in February. While some of this may be due to economic fluctuations, much can also likely be attributed to the timing of sales tax refund requests. These refund swings can be substantial, as can the amount of refunds. For example, in 2016-17, refunds of sales taxes paid to local governments was $234.06 million statewide. Unfortunately, the Department is not able to offer us much more in the way of detail due to taxpayer confidentiality.


The Current Economic Situation

There appear to be three key takeaways from this month’s economic news, as related to North Carolina.

1. The state economy overall is steady and generally holding: Total employment in North Carolina increased very slightly (0.3%) in October, as firms added 11,400 net new jobs. The largest gains, as usual, were in professional and business services, as well as the combined category of trade, transportation, and utilities. The category of “other services” was the area of greatest loss.

While employment increased slightly, unemployment remained the same at 4.1%. This suggests the possibility of folks taking on additional part-time jobs, although that is not certain. What is clear is that the number of North Carolina counties with unemployment rates at 5.0% or less actually declined since September. The five counties with the highest unemployment rates were Scotland (7.2%), Edgecombe (6.9%), Halifax (6.8%), Washington (6.6%), and Wilson (6.6%). The counties with the lowest unemployment rates were Buncombe (3.1%), Orange (3.3%), Alexander (3.4%), Watauga (3.4%), and Chatham (3.5%).
Delinquent mortgage rates also held steady. For the third quarter of 2017, only 1.3% of mortgage payments statewide were at least 90 days past due. This is the same proportion as last quarter. Similarly, the delinquency rate for fixed rate mortgages remains unchanged at 1.3%. There was a small increase in past dues for variable rate mortgages. All of this is in line with national trends.

2. Housing is the hottest part of the market: In October, North Carolina issued 5,899 new residential building permits, an increase of 16.4% over September and 23.3% from last October. Housing starts also increased significantly at 17.9% over September and 6.4% year over year. This is a very interesting development as construction payroll actually decreased over the same period.

Home prices are also strong. On a year over year basis, only Fayetteville showed a decline in home sales prices, and that was less than 1.0%. The Asheville MSA showed the greatest change with a 9.59% increase. Charlotte followed close behind at slightly more than 8.0%. Statewide, the average increase was 5.06%. While below the national average increase of 6.96%, it is well above the regional rate of 4.08%.

3. Gross Domestic Product (GDP) emphasizes the variance in localized growth: This month the Richmond Federal Reserve released real GDP data for 2016. GDP measures the amount of economic productivity. In 2016 North Carolina generated $44,511 per person in GDP. By contrast South Carolina generated $37,075 per person, Virginia $51,643, and Maryland $56,070.

Within the state, there were also substantial variations. Durham had the largest per capita GDP at $68,586. This is the second highest in the region, behind only Washington D.C. at $73,270. Charlotte and Raleigh both registered per capita rates of more than $50,000, at $56,911 and $54,290 respectively. The North Carolina MSAs with the smallest per capita contributions to state GDP were Burlington, Goldsboro, Hickory, and New Bern. It should be noted, however, that while Burlington’s GDP is low, the 2016 estimates are 4.6% higher than last year, putting them behind only Raleigh in terms of year over year increase.

As we have noted before, GDP is very important in driving local economic growth and productivity.


Looking Ahead

At this point most economic indicators are looking fairly positive. The monthly Carolinas Survey of Business Activity suggested that business conditions improved in November, with strong growth in sales and employment. They also indicated that they expect this trend to continue for the next six months, indicating very positive expectations for both sales and overall business conditions.

Consumers also show this same level of enthusiasm. In November consumer confidence increased 3.3 points. “Consumer confidence increased for a fifth consecutive month and remains at a 17 year high,” according to Lynn Franco, Director of Economic Indicators at the Conference Board. She also indicated that “Consumers are entering the holiday season in very high spirits and foresee the economy expanding at a healthy pace into the early months of 2018.” This could prove very helpful to local sales tax collections.

Interestingly, the only leading economic indicator that shows weakness is the national measure of CEO confidence. Only 36% expect improvement in their industries, down from 48% in the spring. Overall their view of the US and European economies was slightly more positive than for much of the world, except India.

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