SAN PATRICIO COUNTY – As Governor Greg Abbott kicked off Phase I of his plan to open Texas and area stores and restaurants slowly begin to reopen, Texas Comptroller Glenn Hegar released the state sales tax revenue numbers last week which highlighted what most county and state officials already knew. Sale tax revenue totaled $2.58 billion in April which was 9.3% less than in April 2019 and is the steepest decline since January 2010.
The majority of these numbers were based on sales made in March before the state was essentially locked down and stores forced to close or operate with curbside or delivery options only.
The comptroller’s office said next month’s remittances likely will show steeper declines compared to a year ago, as the effects of both the shuttering of businesses related to COVID-19 and plummeting oil prices were manifested throughout April.
“What I worry about is consumer demand,” San Patricio County Economic Development Corporation Executive Director Foster Edwards said. “Chemours produces refrigerants that go into air conditioners. Well, if General Motors, Ford and Toyota aren’t making cars anymore they don’t need to buy refrigerants to put in the air conditioners.
“If Frigidaire isn’t making refrigerators anymore, they don’t need to buy refrigerants to put in their refrigerators. That’s the kind of thing you have to worry about for the big businesses.
I don’t know, maybe it’s been a short enough time. Maybe it’s not impacting them yet. And maybe it won’t.
Sales tax is the largest source of state funding for the state budget, accounting for 57% of all tax collections. It can also be a lagging indicator of economic slowdowns.
The recession associated with the financial crisis more than a decade ago began in December 2007 and lasted 18 months, but Texas did not see significant sales tax declines until early 2009.
“When we had the recession in 2007/2008 it was bad, but it was nothing like this,” Edwards said. “And of course, the second quarter is going to be pretty bad too, because we’re starting to come out, but still we’ve had it shut down the entire month of April, and then you’re going to try to get it back going again in May and June.
“April numbers are going to be terrible in the economy and then we’ll see what happens in May and June. I haven’t seen the unemployment figures yet for April, but I figure they’re going to be really terrible, too.”
While the effect on sales taxes from the current economic contraction has been more immediate, the impact of rising unemployment and contracting economic activity in many parts of the state’s economy, including oil and natural gas exploration and production, likely will act as a drag on sales tax revenue for many months.
“If this thing goes on a long time, it makes the point for all of businesses, whether it’s a refinery or a chemical plant, if there’s less gasoline being used then the demand is going to be down,” Edwards added. “But it certainly is impacting small businesses. You just drive through the shopping centers, and you see businesses after businesses that are closed,” he said of the business climate before the reopening plan.
The effects of the March economic slowdown and falling oil prices were more evident in other sources of revenue in April 2020. Texas collected the following revenue from other major taxes:
• motor vehicle sales and rental taxes — $164 million, down 45 percent from April 2019, the largest monthly drop on record in data going back to 1983;
• motor fuel taxes — $284 million, down 12% from April 2019, the steepest drop since 1991;
• natural gas production tax — $67 million, down 48% from April 2019;
• oil production tax — $191 million, down 45% from April 2019;
• hotel occupancy tax — $24 million, down 63% from April 2019, the deepest drop in data going back to 1990; and
• alcoholic beverage taxes — $57 million, down 55% from April 2019. Declines were driven by mixed beverage gross receipts and sales taxes – both of which were down more than 58%. Excise taxes on beer were up 16% from April 2019, while wine excise taxes were up 9% from April 2019.
“The cities are worse off than the county,” Edwards continued. “The cities get sales tax and the county doesn’t. All those businesses that are closed aren’t collecting sales tax, and the county government is going to lose some money because they’re not collecting rental fees for the fairgrounds or marriage licenses or things of that nature.
“Overall, there’s a lot we really have to stop and think about.”