Sales tax revenue has remained surprisingly steady during the pandemic in two Washington State counties, likely bolstered by federal stimulus and unemployment spending.
The Wire spoke to Ilene Thomson, Yakima County treasurer, and Wolfgang Opitz, Pierce County’s deputy finance director about revenue forecasting during the pandemic. Sales tax revenue in both counties has been better than one might expect, and both counties have substantial portions of their population living, and paying taxes, in unincorporated areas.
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Thomson said that over the last year they were concerned about sales tax revenue, especially as the pandemic began. But they found that as people stayed home, they continued to purchase items online. Washington State has been collecting sales tax on online purchases since 2018, which has bolstered Yakima County’s sales tax revenue. Without that collection mechanism, the county would have likely seen a decline in revenue, Thomson said.
Thomson credits this in part to the federal CARES Act spending, and other federal spending that put money in people’s pockets. This allowed people to go out and continue spending money.
“We’re expecting to be about 11.5% over last year, which is crazy,” Thomson said.
For the year-to-date, sales tax revenue is 13% higher than they expected. But while people are spending money now, it’s unclear whether that will hold. Thomson said they’re not expecting additional stimulus money, and don’t know if the child tax credit will be extended.
“We do not know what that will do to our sales tax revenue,” she said.
Still, she expects some purchasing patterns could stay the same, namely buying online instead of brick and mortar stores. That actually helps county revenue, because they get a slice of the sales tax instead of seeing people going to the Tri-Cities or Seattle to make purchases.
The Yakima Valley also saw a boom in construction during the pandemic, which also brought in revenue. School renovations, commercial warehouse construction and home building all saw increases over the last year. But this year, the county is roughly 5% behind on new construction when compared with last year.
The hotel and motel tax is also recovering. During a normal pre-pandemic year, the county could bank on roughly $700,000 a year. Last year it dropped to $350,000. This year, Thomson said they’re projecting to bring in $560,000 and are hoping for a full rebound next year.
Looking ahead, they’re budgeting for a small increase of 3%, which is back to normal levels.
In Pierce County, about 60% of general revenue comes from property taxes, Opitz said. Property taxes are predictable and steady when compared to sales tax revenue. During the spring and early summer of 2020, Opitz said they were unsure of what was going to happen.
“It was an extraordinary time for all concerned, but it was also the early to middle part of our biennial budget period, so we had some room to figure out what was going on,” he said.
But like in Yakima County, he found that people kept buying goods, but their purchasing patterns had changed somewhat. He also credited the sustained purchasing at least in part to fiscal relief from the federal government.
“We ended up with quite stable, almost dead-on the forecast prior to the pandemic,” Opitz said.
Opitz said the numbers show a growth in online sales tax revenue, but also a growth in purchases at gardening and lumber stores and for office supplies. People weren’t paying for parking or lunch in Seattle, but instead using money to buy tech or home goods.
Even though extra federal unemployment assistance wrapped up in September, Opitz said the economy is also recovering. Overall, he said the county is seeing a gradual return to stability month over month.
Eric Johnson, executive director for the Washington State Association of Counties, said they’re still analyzing revenue patterns county-by-county to see what trends emerge. It’s too early to tell whether the state has reached a new normal.
“One of the things we’re really trying to understand is sales tax in particular has been really good for counties, and how much of that is sustainable, or are we just seeing a blip?” he said.
While counties across the state have a relatively stable funding floor from property taxes, sales taxes and real estate excise tax revenue is less predictable. The American Rescue Plan Act delivered $1.5 billion to the state’s 39 counties, funding which can be used through 2026, and which Johnson said counties are trying not to spend all at once.
Like what was seen in both Pierce and Yakima counties, Johnson said purchasing and sales in rural or unincorporated areas have changed, but it’s unclear whether that will be permanent. He gave the example of someone who lives in a rural area who in the past would drive to shop at a Costco within city limits. Now they could potentially order those goods online, with sales tax going to the county instead of the city where the store is located.
“The pandemic really has indicated to people that they can utilize online shopping in a way that they hadn’t,” Johnson said. “Will that continue on?”
It’s too early to tell, but Johnson said they’re working to figure it out.
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