The city of Magnolia collected over $300,000—or 5.94%—less in total sales tax revenue this fiscal year than in FY 2021-22, according to data from the city. This decline comes despite new developments, such as H-E-B, opening on the east side of the city within the last year.

“Just watching what’s happening and the new businesses coming in, I don’t think it’s going to be a continuing trend,” Magnolia Mayor Todd Kana said in an interview.

City officials said one reason for the decline could be the sales tax split that occurs on the east side of the city.

  • Texas caps sales tax at 8.25%, with 6.25 cents of every dollar spent going to the state and 2 cents up for local entities to claim, according to the Texas Comptroller of Public Accounts.
  • Magnolia collects two cents of sales tax revenue everywhere in the city except on the east side, where it gets one cent.
  • Voters approved increasing the sales tax rate 1% within unincorporated Montgomery County ESD 10 in 2014, so ESD 10 collects the other cent.

“If you buy items from Brookshire Brothers that are taxable, we get the full two cents,” City Administrator Don Doering said in an interview. “If you buy items that are taxable from H-E-B, we get one cent. So that is another contributing factor.”

The Magnolia Economic Development 4A and 4B corporations also receive one-half cent and one-quarter cent of sales tax revenue, respectively, MEDC Executive Director Rachel Steele said via email. Steele said sales tax projections are not in line with what the corporations are receiving.

Looking forward

Despite the decline, Magnolia City Council projects an increase in sales tax revenue for FY 2023-24, according to the budget adopted in late August.
  • $2.15 million in sales tax revenue projected in FY 2022-23
  • $2.35 million in sales tax revenue projected in FY 2023-24

On the economic development side, Steele said the MEDC’s planning indicates “this isn’t a short-term issue and will likely challenge us through 2024.”

“As for the 4B Corporation, which does economic and community development projects, it has suspended several programs such as the façade grant and funding of recreation projects at Unity Park,” Steele said.

Despite postponing several projects and programs, Steele said the city’s EDC remains staffed and able to provide a work plan that supports the city and responds to development inquiries.