Sales tax collections hit record numbers

The cities of Austin and Sunset Valley each collected a record amount of sales tax revenue in fiscal year 2014-15, in part due to the 2014 holiday shopping season.


“Retailers are seeing all those big sales, so that translates to sales tax revenue to the city,” said Ed Van Eenoo, city of Austin budget officer and interim finance director.


The city of Austin received more than $204 million in sales tax revenue in FY 2014-15, a $14.5 million increase from the previous fiscal year. The city of Sunset Valley, with a population of roughly 700 people, received $6.15 million, a more than $400,000 increase.




Sales tax collections hit record numbers Sales tax revenue has increased in both Austin and Sunset Valley since fiscal year 2010-11. The Great Recession of 2008 caused a decline in sales tax revenue during FY 2008-09 for both cities.[/caption]

Population growth in the Greater Austin area and continuing development of large retail centers are among the reasons cited for the record  revenue, according to staff members from both cities.


Inflation is another reason for the continued sales tax revenue increase, Van Eenoo said.


“Even if our population isn’t growing, but the cost of goods and services is growing to the extent those goods and services are taxed, there is going to be higher revenue,” Van Eenoo said.




Sales tax collections hit record numbers The cities of Austin and Sunset Valley both place their sales tax revenue into a general fund, a coffer for governmental entities. Both cities use the general fund for their own departments such as police, fire, and parks and recreation. Departments that receive general fund dollars have to rely on sales tax revenue because they do not have their own dedicated revenue source, said Ed Van Eenoo, city of Austin budget officer and interim finance director.[/caption]

Goods and services in December


Van Eenoo said it is the holiday shopping season, which begins in late November and runs through December, that produces the most sales tax revenue in a short period of time. He added that Black Friday, the day after Thanksgiving, is so named because it is the day when many stores start to make profit, or be “in the black,” for the year after a long period of operating “in the red,” or at a profit loss.


December 2014 was the month of greatest revenue for each city compared with the other 11 months in FY 2014-15. Austin received more than $21.1 million, and Sunset Valley received $668,782.


“If you shop around anywhere on a Saturday in mid-December, you know what you’re going to run into,” Sunset Valley City Administrator Clay Collins said.




Sales tax collections hit record numbers December sales tax revenue, reported as February revenue in financial documents because of a two-month lag time between a consumer purchase and the city receiving the revenue, is consistently the highest for Austin and Sunset Valley. Sunset Valley City Administrator Clay Collins said it is a nationwide trend that December is a strong retail month because of the holiday shopping season. Austin and Sunset Valley’s fiscal years begin Oct. 1.[/caption]

Retail follows rooftops


The Greater Austin Chamber of Commerce plays a role in the economic growth of Austin, indirectly bringing more retail to the area.


The chamber recruits primary employers to Austin, which in turn hire people and provide them with disposable income to spend, said Charisse Bodisch, senior vice president of economic development for the chamber.


“You recruit a company, and those employees have needs, whether it’s a place to go eat lunch, get something dry cleaned or whatever,” Bodisch said. “So then all those retail services develop.”


According to map data provided by the city of Austin, a few retail hubs in Southwest Austin are among those that attract residents and tourists to spend money and provide sales tax revenue: The Shops at Arbor Trails, Escarpment Village and Parkside Village near the Circle C neighborhood; Sunset Valley Homestead and Sunset Valley Village in Sunset Valley; and Southpark Meadows near the Onion Creek neighborhood.


Joseph Christopher, a broker with Christopher Commercial Inc., the firm representing the Shops at Arbor Trails and Escarpment Village, said the strong housing market in Circle C made the area a perfect fit for shopping centers.


“Both centers have maintained 100 percent occupancy for at least the last year,” Christopher said.



Tax revenue becomes police officers


Austin and Sunset Valley use their own respective general funds to pay for various city services, such as police, parks and administrative departments.


Each month, Austin and Sunset Valley each put sales tax revenue into their own respective general fund.


“Sales tax is such an important source of revenue because the police and fire departments don’t generate revenue,” Van Eenoo said.


Austin has an 8.25 percent sales tax rate; Sunset Valley has an 8.125 percent rate. Of the  rate in Austin, 6.25 percent goes to the state of Texas, 1 percent goes towards public transportation provider Capital Metro, and the remaining 1 percent goes to the city of Austin, Van Eenoo said.


In Sunset Valley, 1.875 percent of the 8.125 percent goes back to the city, Collins said.


“The sales tax rate doesn’t play into [sales tax revenue growth] too much because the rate hasn’t changed,” Van Eenoo said.


Forty-two percent of Austin’s general fund is funded by property tax revenue, and sales tax revenue, utilities and other revenue each make up roughly 20 percent of the budget.


In Sunset Valley, 96 percent of its general fund comes from sales tax revenue, and the rest comes from other sources such as permitting fees. Sunset Valley does not collect property taxes, Collins said.


Collins said cities can operate on a significant amount of sales tax revenue as long as it is predictable.


“We monitor the sales tax  [revenue] pretty closely,” Collins said. “We have larger reserve funds because of the reliance on sales tax. It could take a downturn, in which case it does, you have to be prepared for the roller coaster.”



Revenue growth trends


Unlike property tax revenue, which is based off of estimated property values, sales tax is subject to unpredictable spending habits of consumers. Cities rely on historical data trends and economists to estimate future sales tax revenue.


Van Eenoo said sales tax  revenue projections are accurate one year in advance but tend to become more conservative when planning future revenue more than a year in advance because of the economy’s cyclical nature. The up-and-down sales tax trend makes it more difficult for cities to plan long-term budgets, he said.


“We always caution our City Council and community to take the conservative approach when estimating your sales tax revenue,” Van Eenoo said.


Austin’s sales tax revenue growth has trended at an average of nearly 5 percent year-over-year for the past decade, and the city of Sunset Valley’s annual sales tax growth is an average of 3 percent during the same time.


Austin is projecting a 5 percent sales tax revenue increase for FY 2015-16, Van Eenoo said. Sunset Valley is estimating a 3 percent sales tax revenue increase during the same time, Collins said.


The national recession during 2008-10 altered the upward sales tax trend revenue for both cities. Austin earned $15 million less in sales tax revenue in FY 2008-09 compared with the previous fiscal year, and Sunset Valley earned about $300,000 less.


“Sales tax revenue will decline at some point in time,” Van Eenoo said. “It’s really hard to predict when that will occur because it’s all dependent on the economy.”

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