The City of Turlock’s sales tax revenue has continued to steadily decline for nine consecutive months according a recent report, replicating numbers that haven’t been seen since the Great Recession.
Despite a consistent increase in sales tax receipts statewide during the same time period, Turlock’s sales tax revenue has consistently fallen since mid-2017 — a sharp decline which was last seen in 2008 and 2009, according to Maryn Pitt, assistant to the city manager for housing and economic development.
“It’s not normal and we need to be cautious,” she said. “Sales tax is absolutely the most volatile — and in a lot of cases unpredictable — revenue source the City has.”
The City’s Sales Tax Update for the first quarter of 2018 shows that $3,099,111 was collected in sales tax revenue, which is a 4.3 percent decrease from the same time period last year. Statewide, sales tax receipts increased 2.7 percent while in Stanislaus County the amount decreased by 0.9 percent.
Sales tax revenue typically accounts for about 35 to 40 percent of the City’s General Fund, serving as an integral factor in providing public safety and other services for the community. Sales tax made up 39 percent of the City’s 2016-2017 General Fund Revenues, or $14,121,200.
According to Pitt, the City has seen the greatest decrease in the building materials wholesale economic segment, which comes during a time when home construction across the country is beginning to slow down, as well as auto sales for both new and used vehicles.
“The different segments can go up and down. When the economy was not so great, the restaurant segment fell off, and now we see that construction is way down,” Pitt said.
Thanks to a state program that allows the City to capture 100 percent of the sales tax from out-of-state manufacturing equipment purchased by local companies, Turlock has been able to capitalize on the construction of sites like Valley Milk and United States Cold Storage. The money, however, is inconsistent one-time funding.
Without consistent development, whether industrial or residential, sales tax revenue can take a hit.
“It’s not the fact that we’re going to get sales tax every quarter from Target — we’ve been successful with that — but the problem is with the one-time money,” Pitt said. “In the manufacturing sector, no one is buying equipment where we can actually collect that.”
Though Valley Milk has completed construction in Turlock, companies like Sunnyside Farms that are in expansion mode could help alleviate some of the decline in revenue, Pitt added.
“Everything from stainless steel to conveyor belts to sorters...the good news is we’ve been able to capture all of those sales tax dollars, but the bad news is it’s one-time funds,” she said.
The decline in sales tax receipts could also be caused by online shopping, which is where 15 percent of retail sales now take place, according to the City report. That’s compared to nine percent in 2013. Amazon nets 44 percent of total internet retail sales, and 75 percent of households with a yearly income of $100,000 or more have an Amazon Prime membership.
This can greatly impact sales tax revenue, Pitt said, especially during the holidays.
“Christmas is one of those times where people think, “Do I want to compete against hordes of people and try to find a place to park, or do I want to sit in my pajamas and finish my Christmas shopping online?’” she said. “It’s an ever-changing marketplace and it’s definitely changing.”
To help local businesses compete with online retailers, the City offers business seminars that help brick and mortar locations enhance their online presence by using social media to encourage traffic to storefronts.
“We’ve seen those businesses that have to compete with Amazon and that’s a game changer,” Pitt said. “We’re in a fluctuating period in terms of how consumers consume goods and services.”
Many businesses that have to compete with Amazon are located in Monte Vista Crossings, which is a bright spot in the City’s sales tax revenue. Of the top contributors to Turlock’s sales tax receipt, which include stores like Costco, Wal Mart, JKB Energy, TJ Maxx and more, nine are located within the shopping center.
While the City’s sales tax revenue numbers may look foreboding, they are ever-changing and unpredictable, Pitt reminded. The next sales tax report for the City is expected soon, as the year’s second quarter recently ended in June. Improvement is essential, as some of the City’s most critical services, like police and fire, hang in the balance.
“We’ll get those numbers in September and see where we are,” Pitt said. “If it’s down again, then that’s obviously a huge concern.”