Texas sales tax revenue drops 13.2% amid coronavirus; steepest decline in a decade
Texas’ sales tax revenue totaled $2.61 billion in May, resulting in the steepest year-over-year decline the state has seen in a decade, Comptroller Glenn Hegar announced Monday.
May’s sales tax revenue is 13.2% less than it was in May of 2019 when it totaled about $3 billion, and Hegar attributed much of the decline to stay-at-home orders and business closures that led to a drop in economic activity. The majority of May sales’ tax revenue is based on sales made in April, when Texas was under a statewide stay-at-home order.
“Significant declines in sales tax receipts were evident in all major economic sectors, with the exception of telecommunications services,” Hegar, the state’s chief financial officer, said in a statement Monday. “The steepest decline was in collections from oil and gas mining, as energy companies cut well drilling and completion spending following the crash in oil prices.”
The novel coronavirus has rocked the economy, and stay-at-home orders and closures have led to record job losses and claims for unemployment insurance. In April, oil prices dropped below zero.
Sales tax revenue, which is the largest source of state funding for the state budget, has been on the decline for months. Collections totaled $2.58 billion in April — 9.3% less than in April 2019, and at the time was the steepest decline since January 2010, according to a news release from the Comptroller’s Office last month.
In Fort Worth, officials anticipate the decline in spending will lead to the city’s general fund taking in $40 million less than expected from sales tax while the police fund will be down $14 million. The public events budget will also take a roughly $14 million hit this year.
Revenue collections have also declined for Texas’ other major taxes. Revenue from the state’s oil production tax was $90 million for May — a 75% drop from May 2019 and the steepest since March 1968. The state’s hotel occupancy tax revenue totaled $8 million in May, an 86% drop from May 2019 and the steepest on record for data going back to 1982.
Many businesses in Texas have been permitted to begin reopening their doors to customers at a limited capacity. Under Gov. Greg Abbott’s phased reopening of Texas businesses amid the pandemic, restaurants, bars, malls, and more have been permitted to resume business to in-person customers — with social distancing precautions in place.
Loosened restrictions will help restart economic activity in the most hard-hit sectors, Hegar said, but he tressed that recovery will still be a long process.
“With the easing of state and local government social distancing orders beginning in May, business activity in the sectors most affected by measures to curb the pandemic should begin to slowly recover, but operations resuming at reduced capacity will result in continued reductions in employment, income and activity subject to sales tax for months to come.”
Late last month, Texas’ top leaders asked state agencies and higher education institutions to identify areas where their budgets can be reduced by 5% for the 2020-21 biennium in order to combat the economic downturn caused by the novel coronavirus’ outbreak. Plans are to be submitted by June 15.
Meanwhile, Hegar is expected to release a revised revenue estimate for the state budget this summer.
