State sales tax receipts across the U.S. shrank by nearly $6 billion, or 21%, from a year earlier in the latest monthly data, according to an analysis released Tuesday.
“State stay-at-home orders, decisions to close businesses, states’ sales tax filing and payment deadline extensions, and COVID-19 cases all contributed to the freefall of sales tax revenues,” the Urban-Brookings Tax Policy Center said in a blog post.
Every reporting U.S. state with a broad-based sales tax posted a revenue loss in a comparison of May 2019 and May 2020 figures, though the extent of the damage varies from state to state.
The economic impact of the pandemic has taken a serious toll on sales tax collections, a mainstay of state revenue, according to year-to-date figures compiled for Bloomberg Tax by the center’s State and Local Finance Initiative from its tables of state reports.
Among the hardest hit in the year-to-date figures are Texas (-18%), California (-11.8%), Maryland (-10.6%), Pennsylvania (-9.7%), and New York (-9%), with the 15 most populous states all showing sales tax drops. Some of the bad news was diluted by solid sales tax revenue growth in the weeks before the shutdown, which “helped to partially offset the losses” seen later, said Lucy Dadayan, a senior research associate at the Tax Policy Center.
New Jersey, for instance, posted a record 29% sales tax revenue loss in monthly data contrasting April 2019 with April 2020, and collections by local governments in New York dropped 32% in May-to-May comparisons. New monthly figures from those states are due to come out soon.
Seven states didn’t issue broad stay-at-home orders, Dadayan noted in an email. That group includes three of the four states with the highest sales tax revenue gains in the year-to-date comparisons: Nebraska (10.5%), South Dakota (6.3%), and Utah (5.4%). Also, she said, the 12 states that tax food purchases benefited from a spike in grocery sales, although six of them reduced their rates and three others offered relief through credits.
On the negative side of the ledger, two of the three states that haven’t yet reported their latest sales tax data—Hawaii and Nevada—are strongly dependent on tourism, suggesting greater vulnerability to the pandemic’s impact on travel, leisure, and hospitality spending.
“Given the recent resurgence of COVID-19 in many states, the return of sales tax revenues to prior levels is not likely to occur any time soon,” the Tax Policy Center said in the blog post.
—With assistance from Sony Kassam.
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