Texas sales tax revenues, up 4.3% in July, swing toward recovery

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Texas sales tax revenues rebounded to positive numbers in July after a deep, three-month slump brought on by the COVID-19 pandemic and falling demand for oil.

At $2.98 billion, the July revenues represented a 4.3% increase compared to the same month last year.

The positive numbers reflect federal stimulus and the relaxed Texas opening of businesses, but Texas is not in the clear as many other revenues have fallen significantly.

Meanwhile, natural gas prices are so low that some producers are burning it in the field rather than taking the expense of transporting it to market.

In the June report, revenues fell 6.5%. April and May were the toughest months, with revenue falling 9.3% and 13.2% respectively.

“State sales tax collections in July were better than expected, increasing despite the high unemployment due to the pandemic,” state Comptroller Glenn Hegar said. “The increase was due to a surge in collections from the retail trade sector.

“State sales tax collections in July were better than expected, increasing despite the high unemployment due to the pandemic,” state Comptroller Glenn Hegar said.

"Receipts from other major sectors — including mining, construction, wholesale trade, services and restaurants — showed significant declines.”

The majority of July sales tax revenue is based on sales made in June and remitted to the agency in July. Widespread social distancing requirements were more relaxed across the state in June than in previous months.

The federal relief funding for the unemployed and stimulus checks for lower to middle-income taxpayers buoyed spending, Hegar said.

“With about 1.3 million Texans with continued claims for insured unemployment and another 184,000 receiving benefits under the Pandemic Unemployment Assistance program in June, it’s likely that consumer spending was significantly supported by enhanced benefits provided by the federal CARES Act and related legislation enacted in response to the COVID-19 pandemic,” Hegar said.

“With the expiration of these benefits at the end of July, consumer spending and sales tax collections may decline in coming months.”

Total sales tax revenue for the three months ending in July 2020 was down 5.3% compared to the same period a year ago. Sales tax is the largest source of state funding for the state budget, accounting for 57% of all tax collections.

The effects of the economic slowdown and low oil prices were more evident in other sources of revenue in July 2020, though most were improved compared to previous months, Hegar said.

Motor fuel taxes, a barometer of traffic on the roads and a source of funding for the Texas Department of Transportation, were down 2.2% to $304 million compared to the same month last year.

With industries serving the energy sector rushing into the bankruptcy courts, exploration and production has declined. Oil production tax revenue of $187 million was down 40% from July 2019. Natural gas production tax revenue of $37 million, fell 71% from July 2019.

The hotel industry, hardest hit by the pandemic along with airlines, produced $34 million of hotel occupancy tax, a 42% decline from July 2019.

Hegar said collections from food and beverage stores were up strongly, as consumers replaced purchases of alcohol from restaurants and bars with alcohol purchased for off-premise consumption.

“Collections from sporting goods stores also rose significantly, as consumers turned to home workouts, bicycling, boating, camping and other forms of outdoor recreation consistent with social distancing,” he said.

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