Online shoppers and their sales taxes help WA local governments weather pandemic
The coronavirus pandemic caused governments to tighten their purse-strings out of fear of the unknown, but the pandemic might have been a financial gain for state and local governments.
It turns out that when the majority of the population is stuck at home, shopping actually increases.
Over the past 21 months, more have shopped online than ever before, getting their packages delivered to their homes, resulting in a surge of taxes for the jurisdiction where they live.
“Every month that that sales tax came in great was another month that I thought, ‘OK, awesome. When is the other shoe gonna drop?’ But it has maintained that ever since,” Puyallup’s finance director Barbara Lopez said.
The Washington State Department of Revenue told The News Tribune that in its most recent data, sales tax collected across the state had increased by 33.6 percent from June 2020 to June 2021. A large portion of that increase came from retail trade like clothing, furniture and cars.
Financial staff in Pierce County, Tacoma, Lakewood and Puyallup have all seen an increase in their sales tax collection, large enough to compensate for losses in other taxes like admission, parking and hotel fees.
“It helped to keep the economy going during the pandemic,” Pierce County’s budget manager Julie Demuth said.
Demuth attributed the increase to more home deliveries from online shoppers, a shift in shopping from cities where people work to where they live, and federal relief dollars to households, from stipends to rental assistance.
In both 2020 and 2021, sales taxes came back higher than expected. Pierce County saw sales tax revenues increase from $128.6 million in 2019 to $141.4 million in 2021. Both years of the pandemic have been more profitable in sales revenues than the last, according to data provided by Pierce County. The county’s 2020-21 biennial budget totals $2.4 billion.
Demuth, who has been with the county for nearly a decade, said she has never seen such a jump in sales tax revenues.
Tacoma also reported an overall incline in sales revenues since 2019. Last year, the council adopted a $3.67 billion 2021-2022 budget. Financial analyst Reid Bennion said the sales tax in 2020 decreased by $4 million compared to the year prior — $53.4 million to $49.4 million — but jumped by 16 percent to $57.7 million in 2021.
He is glad to see the surplus in sales tax revenues but said it isn’t enough to cover the economic toll Tacoma residents and businesses have paid during the pandemic. He has seen a drop in restaurant and venue sales and a greater need for homeless and housing services.
“The sales tax is good, but it doesn’t offset other needs we are seeing in the community,” Bennion said.
Overall, Puyallup saw a 13 percent increase in sales tax this year over 2019, offsetting the loss of the event admissions tax like the Washington State Fair, construction fees and hotels. Puyallup City Council approved a two-year budget for 2021-2022 for $245 million.
Puyallup greatly benefited from car sales at dealerships this year — a 22 percent increase from 2020, Lopez said. Half of sales taxes for the general fund come from car sales, and Lopez said she was glad for the consumer confidence.
Lakewood’s city manager John Caufield said the city saw drops in collections of gambling tax, admissions tax, parks and recreation fees, motor vehicle fuel tax and hotel/motel lodging tax once the pandemic hit. In March, the city put a pause on all general government expenditures and has not had to reduce programs or services.
The city was expecting an overall revenue drop of nearly 14 percent at the beginning of the year, Caulfield said in an email. Compared to 2019, Lakewood saw revenue collections drop by only $8,960 or 0.1 percent in 2020.
Lakewood’s collected sales tax is exceeding budget estimates in 2021 by 22.4 percent, Caulfield said. In its biennium budget, Lakewood allocated $91.5 million for 2021 and $91 million for 2022.
Pierce County, Tacoma, Lakewood and Puyallup did not expect a windfall of extra dollars during the pandemic. In March 2020, they cut spending through hiring freezes, holds on fleet vehicle purchases and pauses on road projects.
After the first year of the pandemic, many decided to relax austerity measures by hiring for open positions and restarting projects.
“We lost revenues over the course of 2020, but it wasn’t nearly as bad as we initially thought,” Lopez said.
The millions of extra dollars will largely be spent conservatively, according to the governments’ financial experts.
Pierce County has allocated the unexpected funds on more public safety, criminal justice reform and a new election center.
Tacoma said there would be budgeting concerns if the sales tax did not bring in more than expected to cover the expected returns of lower revenue streams, like parking and admissions. The increase in sales tax revenues will largely help pay down debt that the parking fees normally do.
“If we didn’t have that buffer in the general fund, we would be having issues,” Bennion said.
The Puyallup council had an additional $3 million unbudgeted this year, choosing to fund the Safe Routes to School program to upgrade sidewalks for students, add a new billing system and bolster the city’s reserves, Lopez said.
Lakewood used the extra monies — $3.6 million — for capital improvements and other one-time investments, like the creation of an economic development opportunity for businesses in its 2022 budget, Caulfield said in an email.
While there likely won’t be as big of a jump in sales tax increases, many local governments expect the increased use of online shopping to stay.
“I don’t have a magic crystal ball or anything like that, but it feels fairly sustainable at this level,” Lopez said of Puyallup’s sales tax collections.
