To: Honorable Mayor and Members of Town Council
From: Trish Muller, Finance Director
Title
Discussion/Direction: 2015 Sales Tax Review
Body
________________________________________________________________________________
Executive Summary
The purpose of this memo is to inform council of 2015 sales tax trends and communicate on considerations for future sales tax projections. Sales tax is a major revenue source accounting for approximately 63% of general fund operating revenue for the Town. Sales taxes are levied at 4% and the Town received approximately $38.3 million dollars in 2015. Sales tax revenues grew by 8.0% for the year with our top five categories showing steady growth.
The Town’s Sales Tax Division tracks and reports sales tax revenue using two separate categories, Geographic (Attachment A), and Industry. These categories help us understand what is going on in the Town in specific areas and categories. For example if we had a particularly warm winter we might see our utilities category receive less revenue as the demand for natural gas is less, which is explainable. Additionally, if there are specific road projects that may deter taxpayers from visiting specific stores in that location. These categories are very helpful in answering these and many other types of questions.
When comparing the Town to other metro area municipalities we must consider that each city has similar yet not identical ways of reporting. For instance, some cities tax base may be larger, including marijuana. Other cities may have more than just sales tax being reported so while we like to compare ourselves to municipalities, this may not be an “apples to apples” comparison. When comparing the 8.0% increase in 2015 sales tax revenue for the Town to the increases in other local municipalities, (Parker (9%), Northglenn (8%), Littleton (7.7%), Centennial (7.2%), Lone Tree (4.5%) and Loveland (3.5%)), we see that Castle Rock is above the average. Please keep in mind each municipality may have a slightly different tax base and include more than just sales taxes in the percentage provided.
So what does this mean for sales tax projections in 2016 and beyond? We will continue to monitor the 2016 sales tax revenue trends and plan to gather further information over the first half of this year to ascertain the validity of any trends. The good news is that the Town of Castle Rock has showed a consistent growth trend since the 2008-2010 correction. The Town’s annual increase in sales tax revenue is 7.7%, 10.5%, 6.9% and 8% respectively since 2012. This shows good solid growth in the sales tax arena! With the new building at the promenade area and additional growth happening in
downtown, we expect solid increases coming for 2016 and through the near future. Staff is currently refining 2016 sales tax projections and will include that information in the 2017 budget process.
Discussion
Sales Taxes are levied at a 4% rate for all retail sales; the Town received about $38.3 million in 2015, which is up 8.0% over prior year, and uses these funds for Police and Fire services as well as maintaining Parks, Streets and operating the community center.
2015 was another strong year for sales tax revenue. The 2015 total sales tax revenue was $38,297,882. The graph below shows a historical look at sales tax revenue by quarter over the last six years. Please note that 2011 had a rate reversion, the Town sales tax rate changed from 3.6% to 4% as noted in in the Town’s intergovernmental agreement with Douglas County dated September 12, 1995, which accounts for the larger jump from 2010 to 2011. The Town is showing a continued and steady growth overall in 2015.
The Town’s Sales Tax Division tracks sales tax revenue by two different categories - geographic area (Attachment A), and industry type. This allows the Town to analyze sales tax revenue increases and decreases by specific areas or industry types. Once pinpointed, staff can drill down to the specific reason for the change in revenue. This in turn helps us keep a pulse in specific areas and industries.
Sales tax by geographic areas
The chart below shows the geographic areas for the Town and the distribution of sales tax revenue in these areas for 2015. Our top five categories for the geographic categories and their proportional share of the 2015 sales tax are Milestone and Metzler (32%), Outlet Mall (20%), Downtown (11%), Out of Town (10%) and Out of State (6%). The Out of Town and Out of State categories include businesses that do not have a storefront in Town but deliver or otherwise have Nexus in Town and
are required to collect sales tax. Together these five categories make up 79% of the Town’s total sales tax revenue.
Due to road construction in specific areas around town throughout most of the summer, we saw less of an increase in certain geographic areas than expected. . The Milestone/Metzler geographic category saw lower than expected revenue, coming in at 3.1%. The Outlet Mall area experienced continued growth in 2015 with an increase in sales tax revenue of 6.9%, however, not as strong as the growth shown in 2014. The downtown area continued strong growth as demonstrated by 2 consecutive years of increases, 13% and 14.6% for 2014 and 2015, respectively. Out of Town and Out of State sales tax revenue growth remained fairly consistent for 2014 and 2015. Attachment B includes annual sales tax information for all geographic areas for 2013, 2014 and 2015.
Sales tax by industry
The chart below shows the industry categories for the Town and percentage of each category for the 2015 sales tax revenue. Our top five categories for the industry categories are Food and General Merchandise (27%), Apparel and Accessories (18%), Restaurants and Bars (11%), Miscellaneous Retail (8%), and Home and Garden (7%). Together these five categories make up 71% of the Town’s total sales tax revenue.
Again we saw road construction in specific areas affect the retail businesses in the Town
This specifically affected the Food and General Merchandise, Apparel and Accessories and Miscellaneous Retail categories which came in around 3.9%, 3.6% and .2% respectively. These are the top three industry categories for the Town this year and they account for 61% of the Town’s sales tax revenue.
The increase Food and General Merchandise remained fairly consistent at 4.4% and 5.2% for 2014 and 2015, respectively. This category includes grocery stores and other basic purchases which provides for a relatively stable monthly and annual sales tax revenue for the town. Apparel & Accessories growth in both 2014 and 2015, was just over 5%. Restaurants and Bars showed additional growth in 2015 due to the opening of several new restaurants in Town. Miscellaneous retail is a catch all categories made up of businesses in the office supply, sporting goods, pharmacy and craft store industries This category continued to show strong increases in 2015. Home and Garden continued with a strong increase of approximately 9% for each year. Attachment B includes annual sales tax information for all Industry categories for 2013, 2014 and 2015.
Sales tax compared to other municipalities and forecasting
Comparing the Town to other similar municipalities around the metro area we are towards the top of the group. While some municipal tax bases are smaller and others include more revenue than just sales tax, the Town’s sales tax revenue increase is comparable to like jurisdictions. We will continue to monitor the metro area municipalities throughout the year for comparisons and trending.
|
Municipal 2015 Sales Tax Revenues |
|
Municipality |
Increase |
|
Parker |
9.0% |
|
Castle Rock |
8.0% |
|
Northglenn |
8.0% |
|
Litleton |
7.7% |
|
Centennial |
7.2% |
|
Lone Tree |
4.5% |
|
Loveland |
3.5% |
*Includes a new tax of 2% on sales of MMJ
Staff will be considering several aspects when creating sales tax projections for 2016 and the forecast for 2017 budget and 3 year balanced plan. The information included in the sales tax projections are the Colorado Legislative Council state wide projections, a 5 year historical average of the Town’s sales tax revenue, new businesses expected in the coming months and years, new single family permits being built in Town and other state and national economic data. This is an organic process with many variables and staff will work towards providing an accurate projection looking through a conservative lens.
Attachments
Attachment A: Sales Tax Districts Map
Attachment B: 2013-15 Annual Sales Tax for all Geographic Areas