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Local Government and School Accountability

Multiyear Financial Planning

A Tutorial for Local Government Officials

Module 2 - Projecting Revenues
Sales and Use Tax and Other Non-Property Taxes

Sensitive to Economic Change: Yes
Predictable: No
Controllable: No
Large Source of Revenues Yes for most local governments other than school districts

Sales and use tax and other non-property taxes such as utility, restaurant and hotel occupancy taxes are major revenue sources for counties, cities, and some towns and school districts. It is useful to track the sales tax separately from other non-property taxes, because it is affected by different factors.

Local sales taxes are collected by the State and distributed to counties and certain cities that pre-empt the county tax. Many counties share sales tax revenues with other local governments according to formulas based on factors such as population and property values.

Sales and most other non-property taxes are more volatile than the property tax, because they are affected by changes in the economy with very little lag. They are also subject to policy changes at the State, county, and sometimes municipal level, including changes to the rate (if the revenue impacted is shared with the government doing the projection), changes to the base (such as sales tax free weeks), or even municipal pre-emption of a portion of the rate by a city.

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Recent history will help localities determine a starting place for their projections, and information about the local economy and policy changes should provide a good reality check. The State's Division of the Budget (DOB) publishes statewide forecasts of many of the factors that can have an impact on non-property tax revenues, including national gross domestic product (GDP), employment trends, retail trade, and wage growth. (These can be found in the part of the Executive Budget's Financial Plan entitled, "Explanation of Receipt Estimates.") Local data (but not projections) can be obtained from the Bureau of Labor Statistics and the U.S. Census Bureau.

Be particularly conservative in projecting this revenue source because it is large and can be volatile.

Some questions that should be considered are:

  • Has there been a change to the sales tax rate?
  • Has there been a change to the sales tax base, such as a tax-free week?
  • Has there been a change to how the sales tax is apportioned between this municipality and the county or state?
  • Has there been substantial economic change, such as in unemployment, retail growth, or interest rates, that may affect spending and therefore the sales tax collected?

  Next: Departmental Income