Understanding Factors that Influence Local Sales Tax Value
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"Feeling LOST? Understanding the factors that influence local sales tax revenue" presentation, made by Dr. Whitney Alfonso, UNC School of Government, at Winter 2013 NCLGBA Conference
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Understanding Factors that Influence Local Sales Tax Value
- 1. Feeling LOST? Understanding the factors that influence local sales tax revenue WHITNEY AFONSO SCHOOL OF GOVERNMENT WINTER 2013 NCLGBA
- 2. North Carolina Compared to Georgia North Carolina: General LOST: Multiple articles Levied by counties Shared with municipalities Voted on to pass Expected to increase own source revenue Earmarked LOST: One article (previously two) is partially earmarked for education capital Distributed on a per capita basis Whitney Afonso December 2013 Georgia: General LOST: 1% rate Levied by counties Shared with municipalities Voted on to pass Required to reduce property tax burden Earmarked LOST: ELOST, HOST, MARTA, and SPLOST Point of sale
- 3. Local Option Sales Taxes (LOSTs) What do you care about when it comes to understanding LOSTs? Whitney Afonso December 2013
- 4. Traditional LOST Considerations In the academic literature most of the discussion revolves around: If the revenue is used to reduce property tax burdens Why/when do governments adopt it Tax Competition If your rate gets too high then you will lose business to neighbors Less of an issue in NC Counties that border other states Passing additional LOSTs for transportation Whitney Afonso December 2013
- 5. Additional LOST Considerations You all probably care less about those issues I am happy to answer those questions though if you have them So I want to know: What are your concerns? Whitney Afonso December 2013
- 6. Who Generates the Most Revenue? Research I am currently working on I am looking at four inter-related topics: Do urban areas do better? Do your neighbors matter? Are tourism areas different? How does LOST revenue raising capacity interact with property tax capacity? Whitney Afonso December 2013
- 7. Urban Areas Are urban areas actually better off? Total dollars Whitney Afonso December 2013 vs per capita
- 8. Regional Effects Whitney Afonso December 2013
- 9. So if you are… Urban or “high” population: In terms of per capita revenue you do not do so well Exceptions are Mecklenburg, Buncombe, and Forsyth True for suburban too Rural with little tourism: Very low in terms of real dollars and per capita dollars Tourism rich: Do very well in terms of real dollars and especially in per capita terms Whitney Afonso December 2013
- 10. Who is Paying? Why do urban and tourism rich areas generate more money? Residents versus Non-Residents Commuters Tourists Which is more volatile? Tourists. Whitney Afonso December 2013
- 11. Volatility Sales taxes are more elastic than property taxes They grow more quickly with income They are also more adversely affected by negative shocks Understand what it means for your revenue Good times are great! Bad times are hard… Plan ahead and save Whitney Afonso December 2013
- 12. Revenue Raising Capacity Relationships between primary revenue sources Property taxes and sales taxes Want to know not just what revenue you collect, but what you could be collecting The idea of capacity Whitney Afonso December 2013
- 13. How to Measure Revenue Raising Capacity Revenue Raising Capacity= Property tax base Sales tax base X + X Average millage rate Average sales tax rate Pattern of who generates the most is similar Rural still generates the least Whitney Afonso December 2013
- 14. Revenue Raising Capacity by County (732.4905,3570.058] (531.6586,732.4905] (453.6219,531.6586] [326.1053,453.6219] Whitney Afonso December 2013
- 15. Further Considerations Sales taxes are often seen as extremely inequitable It appears they are But not on the dimension previously discussed One caveat: Tourism rich and urban areas have a lot of non-resident traffic This means they are able to export a portion of the burden However they also have large populations coming and using resources and services they do not pay traditional taxes Whitney Afonso December 2013
- 16. County Distributions: NC & GA North Carolina: General LOST: Distributed to municipalities by the discretion of the county Per capita or ad valorem distributions Constant for all munis in the county Earmarked LOST: For the earmarked revenue munis can treat it like a typical intergovernmental transfer Whitney Afonso December 2013 Georgia: General LOST: Distributed to munis by the discretion of the county 8 considerations in LOST distribution -> no formula Different munis can receive dramatically different amounts arbitrarily Earmarked LOST: Must be used for the earmarked purpose
- 17. County to Municipality Distributions Per capita versus ad valorem PC: Total population in addition to population in municipalities AV: Total property tax levied in county and munis So dependent on revenue, not necessarily capacity Revenue Raising Capacity One way to frame this discussion is to look at county and municipal RRC Not just which way would they receive the most LOST revenue Especially if different strategies benefit different munis within the county Look at sales tax revenue distribution strategies instead of the “base” Whitney Afonso December 2013
- 18. Questions Any questions about LOSTs and literature? Any thoughts or considerations about LOST? Any areas of LOSTs you would like to see explored? Please feel free to contact me: afonso@sog.unc.edu Whitney Afonso December 2013
- 19. Brief Background on NC LOSTs Local option sales taxes (LOSTs) in NC are composed of many “articles” or smaller LOSTs Rates vary between 2% and 2.25% with 3 counties having and additional 0.5% for transit Base 2% taxes food unlike the state level sales tax One article is partially earmarked for counties For education capital Revenue is distributed on a (weighted) per capita basis This is a change! There used to be more distributed and earmarked like this Municipalities are not constrained State collects revenue and distributes it back to counties and counties distribute to municipalities Per capita versus ad valorem basis Whitney Afonso December 2013
- 20. Revenue Raising Capacity Average Property Tax and LOST Revenue Total LOST Property Value Urban 14,700 291,709 44,000,000 In total Suburban 5,463 41,237 8,225,920 dollars Rural 3,020 19,948 3,308,751 (000s) Tourism rich 8,953 60,061 12,300,000 Urban 89.75 610 93,316 Suburban 89.53 633 143,451 In per capita dollars Rural 64.54 465 79,799 Tourism rich 100.71 554 132,354 The suburban and rural counties that have been re-coded as tourism are not included in the suburban and rural averages. The totals are presented in thousands of dollars, the per capita terms are not. Property tax revenue Whitney Afonso October 2013
Editor's Notes
- Local option sales taxes (LOSTs) in NC are composed of many “articles” or smaller LOSTs Rates vary between 2% and 2.25% with 3 counties having and additional 0.5% for transit Base 2% taxes food unlike the state level sales taxOne article is partially earmarked for counties For education capital Revenue is distributed on a (weighted) per capita basis This is a change! There used to be more distributed and earmarked like this Municipalities are not constrainedState collects revenue and distributes it back to counties and counties distribute to municipalities Per capita versus ad valorem basis
- Urban is defined as if the county has a population of over 200,000- 2 counties in nc have populations over 500,000- mecklenburg and wake, but that misses other metro areas- so the definition is expanded.Suburb is the “urban fringe” specification from the national center for health statistics
- Morans I is 0.294- for article 39 per cpaitaPositivae spatial autocorrelationMore than $150 million in real dollars from tourism moneyThe range of travelers’ expenditures by county for 2009, as an example, ranges between $3,321.37 million (Mecklenburg County) and $1.61 million (Camden County). The highest level of traveler expenditures in a nonurban county in 2009 was $766.56 million in Dare County, a coastal county with a population of less than 35,000. The county characterized as tourism rich with the lowest level of traveler expenditures in 2009 is Onslow County, which had traveler expenditures of $164.12 million. It is also on the coast and has a population of just less than 180,000.Even though Mecklenburg County attracts the highest amount of tourism dollars, it is not coded as tourism rich because it is coded as urban. Only suburban and primarily rural counties are designated as tourism rich.Onslow County is not coded as a tourism rich area from 2003 to 2005 because it falls below the threshold.
- More than $150 million in real dollars from tourism moneyThe range of travelers’ expenditures by county for 2009, as an example, ranges between $3,321.37 million (Mecklenburg County) and $1.61 million (Camden County). The highest level of traveler expenditures in a nonurban county in 2009 was $766.56 million in Dare County, a coastal county with a population of less than 35,000. The county characterized as tourism rich with the lowest level of traveler expenditures in 2009 is Onslow County, which had traveler expenditures of $164.12 million. It is also on the coast and has a population of just less than 180,000.Even though Mecklenburg County attracts the highest amount of tourism dollars, it is not coded as tourism rich because it is coded as urban. Only suburban and primarily rural counties are designated as tourism rich.Onslow County is not coded as a tourism rich area from 2003 to 2005 because it falls below the threshold.
- Jobs may change with the economy but vacationhabits change even more
- Affects different areas differently:Tourism rich areas, for example, generate less revenue from property taxes but have high total property valuesComparatively low property tax ratesSo they are more dependent on LOST revenue
- You can include other revenue streams in this discussion as wellIf you want to look at intergovernmental transfers from the state, etc
- Though for ga they have to at least reconsider it and come to the table to negoitatie every 10 yrsLOST as proportion of total revenue .0334* (2.31)Number of municipalities in the county .00607*** (.372)City serves as county seat .0438*** (3.44)Proportion of county population .770*** (11.42)City population .000000157 (.86)City receives revenue from SPLOST (0, 1) .0159 (.03)Total jurisdictional revenue .0000000004 (1.56)Council–manager form of government .0114 (1.74)City assesses a property tax .00357 (.56)Constant .0341*** (3.41)
- What are the options that munis have to raise revenues- can include those
- More than $150 million in real dollars from tourism moneyThe range of travelers’ expenditures by county for 2009, as an example, ranges between $3,321.37 million (Mecklenburg County) and $1.61 million (Camden County). The highest level of traveler expenditures in a nonurban county in 2009 was $766.56 million in Dare County, a coastal county with a population of less than 35,000. The county characterized as tourism rich with the lowest level of traveler expenditures in 2009 is Onslow County, which had traveler expenditures of $164.12 million. It is also on the coast and has a population of just less than 180,000.Even though Mecklenburg County attracts the highest amount of tourism dollars, it is not coded as tourism rich because it is coded as urban. Only suburban and primarily rural counties are designated as tourism rich.Onslow County is not coded as a tourism rich area from 2003 to 2005 because it falls below the threshold.