Sales tax revenue in May fell, adding to already historic declines.
Sales tax revenue in May fell by more than 13 percent, adding to already historic declines amid the coronavirus pandemic and an unrelated crash in global oil prices.
The drop is the largest yearover-year since January 2010, and is the first full glimpse into the financial fallout from the coronavirus. Though the revenue totals are for May, they mostly represent transactions in April, when a statewide lockdown was in place to slow the spread of the virus. March sales were down 9.3 percent, state records show.
Sales tax is the largest source of funding for the Texas state budget, including public education and health care. It typically brings in about $3 billion monthly.
“Significant declines in sales tax receipts were evident in all major economic sectors, with the exception of telecommunications services,” Comptroller Glenn Hegar said in a statement. “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.
Revenue from other major taxes was also down, including a 38percent hit in motor vehicle sales and rental taxes, and a 30-percent decline in motor fuel taxes. Tax revenue from oil and natural gas production also had steep declines. Hotel occupancy taxes brought in just $8 million, the lowest amount on record.
“The business closures and restrictions and stay-at-home orders due to the COVID-19 pandemic spurred deep drops in collections from restaurants, amusement and recreation services, and physical retail stores,” Hegar said. “These declines were offset in part by increases from big box retailers and grocery stores that remained open as essential businesses, online retailers and restaurants that could readily pivot to takeout and delivery service.”
While the state has begun re
opening, many businesses are still closed or operating at reduced capacity. Unemployment remains high and the drop in energy prices in March has been compounded by a fall in demand as Texans remain largely indoors. Hegar said the slump in tax revenue will likely last “for months.”
Some state and local officials have called for cuts in response to the downturn. Gov. Greg Abbott and other Republican leaders have asked most state agencies to plan for 5 percent reductions through next year. Cities and towns are bracing for difficult budget cycles in the fall.
"This is going to be a hit," said Bennett Sandlin, head of the Texas Municipal League. The organization is expecting equally grim numbers for local sales tax revenue when they're released in the coming days. "I think it's going to be difficult to provide any full level of services without some cuts," Sandlin said.
Going into this fiscal year, the state had planned for a 5-percent increase in sales tax revenue. It’s now on track to fall short of that; Hegar has said he will formally lower revenue projections later this year.
Hegar can use the state’s rainy day fund to plug temporary shortfalls until lawmakers return to Austin next January. It has about $8.5 billion available. The state has also received billions in federal relief funding for the pandemic.