{"id":5915,"date":"2020-07-08T14:58:32","date_gmt":"2020-07-08T18:58:32","guid":{"rendered":"https:\/\/www.accuratetax.com\/?p=5915"},"modified":"2024-02-14T21:53:47","modified_gmt":"2024-02-14T21:53:47","slug":"covid-19-sales-tax","status":"publish","type":"post","link":"https:\/\/www.accuratetax.com\/blog\/covid-19-sales-tax\/","title":{"rendered":"How COVID-19 Is Affecting Sales Tax"},"content":{"rendered":"\n

The immediate effects of COVID-19 are clear. We see them on the news and social media every day, and it\u2019s having an impact on almost everyone in the country. But there are effects we can\u2019t necessarily see right away that could have a lasting impact on states and municipalities. One major issue that states are starting to grapple with, while balancing the need for safe policy to protect their citizens, is revenue.<\/p>\n\n\n\n

The month of March in particular represented a sharp drop in revenue consumer spending down nearly 20% between February and April<\/a> during the height of the economic shutdown and mandated quarantine. Those numbers improved in May with an 8% increase, but we remain well below the highs we saw at the start of the year.<\/p>\n\n\n\n

In Texas<\/a>, a 9% drop in state sales tax revenue equated to $320 million in just one month – the lowest since 2010, and Florida estimates peg the drop as high as $700 million over March and April. Some cities in California reported revenue drops as high as 16%<\/a>, and smaller municipalities<\/a> that rely on the busy spring months to buoy sales tax revenue for the year have seen drops as sharp as 30% year over year. And in almost all of these locations, COVID-19 cases are surging again, begging the question of whether we\u2019ll see similar shutdowns in the future.<\/p>\n\n\n\n

The bottom line is that states and cities that rely on sales tax as a significant percentage of their funding are being hit exceptionally hard by the decreased economic activity caused by the coronavirus pandemic. And while most local economies have at least partially reopened, a surge in cases in late June and early July has already led to the shuttering of restaurants, bars, and other businesses in the hardest-hit states.<\/p>\n\n\n\n

What Revenue Shortages Mean in the Future<\/h2>\n\n\n\n

The majority of state revenue comes from income and sales taxes. In Florida, sales tax alone is 70% of general revenue, which directly funds local schools, healthcare facilities, and social services among many other endeavors. A sharp drop in revenue has a significant impact on how states are run and what services they can offer.<\/p>\n\n\n\n

The Broward Schools Superintendent cited a likely 20-25% cut<\/a> in the school district\u2019s budget in the coming year. In Connecticut, a state that only saw a 7% drop in revenue from sales tax during The Great Recession, double-digit drops are expected. State and local governments throughout the country are struggling to identify how to close historic budget gaps as residents stay home, businesses are closed or operating at only partial capacity, and travel is almost non-existent.<\/p>\n\n\n\n

Sales tax frequently goes into a general fund<\/a> that is used for police and fire department funding, public schools, transportation and infrastructure, children\u2019s health insurance, parks, and recreational facilities, medical facilities, and more. The loss of that much revenue and the requirement to balance the budget each fiscal year will force these governments to make some hard decisions.<\/p>\n\n\n\n

How States Might Recoup Lost Revenue<\/h2>\n\n\n\n

Which brings us to the big question – how will states make enough money to minimize the damage to social services? Schools still need to run. Healthcare facilities are a must right now.<\/p>\n\n\n\n

There are a number of concepts under consideration, some of which will have a direct impact on local businesses that are also struggling right now. Things to consider as the crisis stretches on include:<\/p>\n\n\n\n