COMPTROLLER ADDRESSES LOCAL TAXES:
PART ONESALES TAXES
In August 2012, the Texas Comptroller released a report called “Your Money and the Taxing Facts,” which examines local tax growth. The report can be read here: http://www.texastransparency.org/yourmoney/pdf/TexasItsYourMoney-TaxingFacts.pdf. The gist of the report is that local taxes—school, city, county, and special district—are growing faster than inflation and population growth combined. The report makes this claim for both local sales taxes and local property taxes. This article will examine the report’s treatment of local sales taxes. The next issue will look at property taxes.
Regarding sales taxes, the report first notes a sharp increase in the number of special districts levying a sales tax—from five in 1991 to 193 in 2011—relative to the number of cities and counties levying a sales tax. Most sales tax growth, in other words, is from special districts, not cities and counties.
The report then uses a chart to show total growth in sales tax levy by each type of taxing entity relative to inflation. Here’s the chart:
About the chart, the comptroller says: “Most local sales tax collections increased much more rapidly than the 121 percent growth in combined population and inflation during those fiscal years.” Presumably cities are lumped into that offending group, as the chart indicates 182 percent growth for city sales taxes compared to only 121 percent growth in combined population growth and inflation. And presumably the state is not a culprit, as the chart indicates that state sales tax growth is much closer to combined population growth and inflation at 135 percent.
Is the article right to suggest that cities are benefitting more from sales tax growth than the state does? Not really. The article fails to address one important fact: city sales tax base is virtually identical to the state sales tax base.1 In any given city and for any given taxpayer, sales taxes from a city’s one-cent general revenue city sales tax grew at a virtually identical rate as the 6.25- cent state sales tax during that time frame. So what explains the different lines on the chart—182 percent city growth compared to 135 percent for the state? It must be due entirely to the fact that the number of cities levying a sales tax grew from 971 to 1,064 during the time period, and that the voters in some cities adopted special purpose sales taxes that must be spent for dedicated purposes other than general revenue.
The article alludes to this being a factor, but primarily for special districts: “Local sales tax collections have increased more than the rate of inflation, helped in part by the strong economy and growing population, as well as the increased number of entities—particularly special purpose districts—collecting tax.” The article fails to explain, however, that the differential growth between city and state sales taxes is entirely a function of new cities levying a tax that didn’t do so in 1992, or to voters who chose to adopt a special purpose tax where there wasn’t one in 1992.2 To have made that point would have undermined the premise of the article, that local governments are taxing out of control. A more balanced analysis would have concluded that cities and the state are in virtually the same boat when it comes to sales tax growth, and that neither have grown their general revenue sales taxes much beyond combined inflation and population.
1 The state taxes more phone bills than do cities, while a handful of cities tax residential electric bills where the state doesn’t. These are minor distinctions, however.
2Some of the special purpose sales taxes voted for by city residents during the time period in question were to reduce city property taxes, yet those taxes were added onto the city total in the article.