Local Sales Tax Collections Getting a Chilly Reception

By Dave Lucas, NYSAC Director of Finance and Intergovernmental Affairs

Through the first part of May, local sales tax collections for calendar year 2024 are returning to pre-COVID trends in some counties, with many others underwater compared to the same period last year. Sales tax is the top source of county revenue in just over half of the counties and is the primary source of revenue to keep pressure off the property tax levy.

All counties, including New York City, have seen sales tax barely budge during this period, up by only $30 million, .4 percent. The 57 counties are down $52 million in aggregate, -1.4 percent, ranging from -7.3 percent to +11.1 percent. New York City is up $82 million, 2.4 percent. Overall, 37 counties (64 percent) collected less sales tax than last year and 21 (36 percent) collected more during this period.

It is important to note that lower/slowing sales tax collections do not just impact county budgets but also town, city, village and some school district budgets as well. Most counties share the county sales tax (about 25 percent of aggregate collections) with their partner jurisdictions. The shared sales tax ranges from 5 percent to 69 percent of what the county receives (12 counties share no sales tax).

Source: Federal Reserve Bank of San Francisco

What is Different?

Several factors are contributing to the reversal in fortunes including very robust growth in the first part of 2023, cooling prices (especially energy), slowing wage growth, and consumers running out of steam (even though they manage to keep on spending…for now).

A key metric local government will be watching is the strength of consumer spending. Economists continue to be surprised by the pace of consumer spending but are concerned about that ability going forward. The Federal Reserve Bank of San Francisco has been monitoring federal COVID assistance to individuals and its impact on consumer activity since the beginning of the pandemic. They have concluded that nationwide a $2.1 trillion peak in excess savings generated by this federal aid occurred in August 2021 and as of March 2024, the surplus savings has largely been spent with an aggregate negative balance of $72 billion today.

Consumers can spend more to keep the economy moving forward but it may be at a slower pace than the last couple of years. Cooling prices can help, dipping into other savings and utilizing debt (credit cards, loans, etc.) can also buoy spending. A key lifeboat for consumers will be whether wages can continue to grow beyond the rate of inflation. Nationally, since February 2023, aggregate hourly wage growth has been higher than the rate of inflation, but the gap is narrowing.

New York State, Wage Growth & Sales Tax

While the nation overall has managed wage growth above the rate of inflation for the last 15 months, that has not been the case in New York State. In fact, from the beginning of 2020 through March 2024, monthly (year over year) wage growth in the Empire State has averaged 3.4 percent while the nation has averaged 4.7 percent. The lagging wage performance in New York is hitting consumer demand harder and is showing up in local sales tax collections. The higher cost of living in New York compared to other states can also dampen consumer sentiment.

For the 2024 state sales tax year (12 months ending February 2024) total taxable sales grew by 3.1 percent. This is close to the average annual growth rate of 3.8 percent for the 2015 to 2020 period leading up to the pandemic. The following categories of taxable goods and services led the way in the most recently completed sales tax year:

AUTOMOBILE DEALERS – up 3.9 percent,

RESTAURANTS – up 6.5 percent,

TRAVELER ACCOMMODATION – up 9 percent, led by 11 percent growth in NYC,

ELECTRONIC SHOPPING – up 7.4 percent,

GENERAL MERCHANDISE & SUPERCENTERS – up 1.8 percent,

GASOLINE STATIONS – up .8 percent.

These categories of taxable sales have been the top producers of sales tax for most of the 57 counties for the last five years, producing about 38 percent of total sales tax revenues on average. Less economically diverse counties may see their top six categories produce as much as 58 percent of their total sales tax revenues in any given year.

Counties will closely monitor sales activity during the remainder of 2024 and beyond.