With red flag raised on New York’s sales tax revenue, economists struggle to explain why

Feb 1, 2016
Originally published on February 1, 2016 4:52 am

New York’s Association of Counties is going to be taking a closer look at why 30 of the state’s 62 counties showed a negative trend in sales tax revenue from 2014 to 2015.


New York State Association of Counties Deputy Director Mark LaVigne said the results are part of a larger trend of stagnation in retail activity. NYSAC is raising the proverbial “red flag” with their year-end report.

“The red flag means we’re not out of this prolonged recession yet and we are still struggling as governments to continue providing the critical services that are needed in our communities,” LaVigne explained.

Those services include 9-1-1 lines, law enforcement, local jail operations and more. LaVigne said New York needs to see economic activity in the retail sector to drive economic activity in other areas.

Economists nationwide are still trying to explain the drop in sales tax revenue. One possibility is the cost of fuel. Aside from the usual summer bump, gas prices have been on a steady decline since mid-2014. With lower costs at the pump in New York come less sales tax revenues.

“That said, the individuals, the families that are saving money – up to $1200 a year in some instances – it’s like a tax break or a tax refund,” said LaVigne.

That “tax break” isn’t being reinvested in goods and services. Instead, many people are either saving their money or paying down debt.

While LaVigne admits that building a nest egg and getting rid of financial burdens is a good thing for families, it may not be the best thing for the big economic picture.

“We also need economic activity to keep our capitalist society running,” LaVigne said.

While gas prices may be going down, a lot of people aren’t seeing their wages go up, and that means apprehension when it comes to opening wallets.

“People may not want to go out and make that car purchase or other big purchases for their homes,” said LaVigne.

Another part of the noticeable trend in the decline of sales tax revenue is geographic.

“You can see that all along New York State’s border to Canada, these counties are seeing a reduction in sales tax revenue,” LaVigne pointed out.

From Clinton County in the state’s northeast corner, all the way to Chautauqua in the far west, only two counties actually showed a rise in revenue from 2014 to last year, and it wasn’t by much.

One of the key contributors is the decline in value of the Canadian Dollar. Sliding down since 2012, the exchange currently stands near 71 cents U.S. to every dollar Canadian.

“So clearly it is having an impact,” said LaVigne. “Perhaps more New Yorkers are going to Canada for their purchases and fewer Canadians are coming to the U.S. and to New York communities to go to the mall or go out to dinner.”

What’s been described as “most troubling” by NYSAC President William Cherry is that 31 of the 62 counties of New York showed a negative trend in comparing each year’s fourth quarter sales tax revenue. It’s a time when number crunchers typically expect a boost from holiday sales.

“This is confounding retailers and economists,” LaVigne said. “Clearly there is increased activity in online buying of goods and services, but even with that there should have been a greater bump in retail activity in the fourth quarter.”

In Western New York, only two counties showed growth for the overall year, and four were in the negative for the 4th quarter comparison.

LaVigne said NYSAC is going to be talking with state tax and finance representatives about how to identify more detail on what is happening with sales tax and retail activity in local communities.

Looking to 2016, even the Federal Reserve isn’t sure which way things are going to go, according to LaVigne. For New York, he’s fairly optimistic.

“I say that it’s time for New York to leave behind this recession,” said LaVigne. “As the state government and local government we’re investing in new businesses and new jobs, so I anticipate a positive economic future for New York.”

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