Even the most optimistic predictions for sales tax returns in the Golden State didn’t come close to what came to fruition–an 18% spike in local one-cent sales and use tax from July through September 2021. The same quarter of 2020 marked the start of pandemic recovery, with the following strong growth snowballing into the recent results.
“We’re finally seeing a strong comeback from restaurants and hotels, which caught a few of us by surprise,” noted HdL President/CEO Andy Nickerson. “That industry arguably suffered the most in the pandemic, and because of that, many forecasted its recovery would take much longer than it has. Summer brought a 47% increase in statewide sales tax, exceeding pre-pandemic amounts in 2019.”
While those in the industry await the return of foreign tourism to California–especially metropolitan areas–strong domestic travel is impacting a variety of regions around the state, particularly Southern California and the Central Coast.
Meanwhile as car dealers remain concerned about inventory shortages, new and used vehicle sales posted solid gains of 16%. “As businesses, commuters, and travelers returned to the road with increased gas prices, fuel and service stations also experienced a dramatic recovery,” commented Nickerson. Fuel and gas stations saw a staggering 54% increase in tax receipts.
General consumer goods marked a steady recovery, led by apparel, jewelry, and electronic/appliance retailers. Discount department stores, especially those selling gas, exemplified the power in brick-and-mortar. Gains from the countywide use tax pools, however, slowed to 2%.
HdL determined the overall 18% spike in one-cent sales and use tax by comparing this quarter’s performance with that of the same quarter in 2020, after adjusting for accounting anomalies and back payments from previous quarters. The last two years have seen more anomalies than usual due to Governor Newsom’s Executive Orders allowing businesses to defer a portion of sales tax payments during the pandemic. Now that the program has expired, merchant remittances are more consistent, making cash receipts more reflective of underlying economic activity.
“Possible headwinds into 2022 include pent up demand for travel and experiences which could shift spending away from taxable goods, higher priced fuel, merchandise, and services. This will likely displace consumers’ disposable income and expected interest rate hikes could result in more costly financing for automobiles, homes, and consumer loans,” Nickerson concluded. “Public agencies will need to continue evaluating their sales tax strategies, economic development tactics, and revenue measures to adjust.”
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About HdL Companies
HdL Companies is dedicated to supporting local governments across the U.S. with revenue enhancement, technology and consulting services that enable cities, counties and special districts to better serve their constituents. Founded in 1983, HdL Companies’ comprehensive approach to revenue management is trusted by over 500 local governments. The company has successful recovered over $3 billion in revenue for client agencies. For more information, visit hdlcompanies.com.
Contact: Jennifer Pierce, HdL Companies, 714.879.5000