"Feeling LOST? Understanding the factors that influence local sales tax revenue" presentation, made by Dr. Whitney Alfonso, UNC School of Government, at Winter 2013 NCLGBA Conference
Interimreport1 January–31 March2024 Elo Mutual Pension Insurance Company
Understanding Factors that Influence Local Sales Tax Value
1. Feeling LOST?
Understanding the factors that
influence local sales tax revenue
WHITNEY AFONSO
SCHOOL OF GOVERNMENT
WINTER 2013
NCLGBA
2. North Carolina Compared to Georgia
North Carolina:
General LOST:
Multiple articles
Levied by counties
Shared with municipalities
Voted on to pass
Expected to increase own
source revenue
Earmarked LOST:
One article (previously two) is
partially earmarked for
education capital
Distributed on a per capita
basis
Whitney Afonso December 2013
Georgia:
General LOST:
1% rate
Levied by counties
Shared with municipalities
Voted on to pass
Required to reduce property
tax burden
Earmarked LOST:
ELOST, HOST, MARTA, and
SPLOST
Point of sale
3. Local Option Sales Taxes (LOSTs)
What do you care about when it comes to
understanding LOSTs?
Whitney Afonso December 2013
4. Traditional LOST Considerations
In the academic literature most of the discussion
revolves around:
If the revenue is used to reduce property tax burdens
Why/when do governments adopt it
Tax Competition
If your rate gets too high then you will lose business to neighbors
Less of an issue in NC
Counties that border other states
Passing additional LOSTs for transportation
Whitney Afonso December 2013
5. Additional LOST Considerations
You all probably care less about those issues
I am happy to answer those questions though if you have them
So I want to know: What are your concerns?
Whitney Afonso December 2013
6. Who Generates the Most Revenue?
Research I am currently working on
I am looking at four inter-related topics:
Do urban areas do better?
Do your neighbors matter?
Are tourism areas different?
How does LOST revenue raising capacity interact with
property tax capacity?
Whitney Afonso December 2013
7. Urban Areas
Are urban areas actually better off?
Total dollars
Whitney Afonso December 2013
vs
per capita
9. So if you are…
Urban or “high” population:
In terms of per capita revenue you do not do so well
Exceptions are Mecklenburg, Buncombe, and Forsyth
True for suburban too
Rural with little tourism:
Very low in terms of real dollars and per capita dollars
Tourism rich:
Do very well in terms of real dollars and especially in per
capita terms
Whitney Afonso December 2013
10. Who is Paying?
Why do urban and tourism rich areas generate more
money?
Residents versus Non-Residents
Commuters
Tourists
Which is more volatile?
Tourists.
Whitney Afonso December 2013
11. Volatility
Sales taxes are more elastic than property taxes
They grow more quickly with income
They are also more adversely affected by negative shocks
Understand what it means for your revenue
Good times are great!
Bad times are hard…
Plan ahead and save
Whitney Afonso December 2013
12. Revenue Raising Capacity
Relationships between primary revenue sources
Property taxes and sales taxes
Want to know not just what revenue you collect, but
what you could be collecting
The idea of capacity
Whitney Afonso December 2013
13. How to Measure Revenue Raising Capacity
Revenue Raising Capacity=
Property tax base
Sales tax base
X
+
X
Average millage rate
Average sales tax rate
Pattern of who generates the most is similar
Rural still generates the least
Whitney Afonso December 2013
14. Revenue Raising Capacity by County
(732.4905,3570.058]
(531.6586,732.4905]
(453.6219,531.6586]
[326.1053,453.6219]
Whitney Afonso December 2013
15. Further Considerations
Sales taxes are often seen as extremely inequitable
It appears they are
But not on the dimension previously discussed
One caveat:
Tourism rich and urban areas have a lot of non-resident traffic
This means they are able to export a portion of the burden
However they also have large populations coming and using
resources and services they do not pay traditional taxes
Whitney Afonso December 2013
16. County Distributions: NC & GA
North Carolina:
General LOST:
Distributed to municipalities
by the discretion of the
county
Per capita or ad valorem
distributions
Constant for all munis in the
county
Earmarked LOST:
For the earmarked revenue
munis can treat it like a
typical intergovernmental
transfer
Whitney Afonso December 2013
Georgia:
General LOST:
Distributed to munis by the
discretion of the county
8 considerations in LOST
distribution -> no formula
Different munis can receive
dramatically different
amounts arbitrarily
Earmarked LOST:
Must be used for the
earmarked purpose
17. County to Municipality Distributions
Per capita versus ad valorem
PC: Total population in addition to population in municipalities
AV: Total property tax levied in county and munis
So dependent on revenue, not necessarily capacity
Revenue Raising Capacity
One way to frame this discussion is to look at county and municipal
RRC
Not just which way would they receive the most LOST revenue
Especially if different strategies benefit different munis within the
county
Look at sales tax revenue distribution strategies instead of the “base”
Whitney Afonso December 2013
18. Questions
Any questions about LOSTs and literature?
Any thoughts or considerations about LOST?
Any areas of LOSTs you would like to see explored?
Please feel free to contact me: afonso@sog.unc.edu
Whitney Afonso December 2013
19. Brief Background on NC LOSTs
Local option sales taxes (LOSTs) in NC are composed of
many “articles” or smaller LOSTs
Rates vary between 2% and 2.25% with 3 counties having and
additional 0.5% for transit
Base 2% taxes food unlike the state level sales tax
One article is partially earmarked for counties
For education capital
Revenue is distributed on a (weighted) per capita basis
This is a change! There used to be more distributed and earmarked
like this
Municipalities are not constrained
State collects revenue and distributes it back to counties
and counties distribute to municipalities
Per capita versus ad valorem basis
Whitney Afonso December 2013
20. Revenue Raising Capacity
Average Property Tax and LOST Revenue
Total
LOST
Property
Value
Urban
14,700
291,709
44,000,000
In total
Suburban
5,463
41,237
8,225,920
dollars
Rural
3,020
19,948
3,308,751
(000s)
Tourism rich
8,953
60,061
12,300,000
Urban
89.75
610
93,316
Suburban
89.53
633
143,451
In per capita
dollars
Rural
64.54
465
79,799
Tourism rich
100.71
554
132,354
The suburban and rural counties that have been re-coded as tourism are not
included in the suburban and rural averages. The totals are presented in
thousands of dollars, the per capita terms are not.
Property tax
revenue
Whitney Afonso October 2013
Editor's Notes
Local option sales taxes (LOSTs) in NC are composed of many “articles” or smaller LOSTs Rates vary between 2% and 2.25% with 3 counties having and additional 0.5% for transit Base 2% taxes food unlike the state level sales taxOne article is partially earmarked for counties For education capital Revenue is distributed on a (weighted) per capita basis This is a change! There used to be more distributed and earmarked like this Municipalities are not constrainedState collects revenue and distributes it back to counties and counties distribute to municipalities Per capita versus ad valorem basis
Urban is defined as if the county has a population of over 200,000- 2 counties in nc have populations over 500,000- mecklenburg and wake, but that misses other metro areas- so the definition is expanded.Suburb is the “urban fringe” specification from the national center for health statistics
Morans I is 0.294- for article 39 per cpaitaPositivae spatial autocorrelationMore than $150 million in real dollars from tourism moneyThe range of travelers’ expenditures by county for 2009, as an example, ranges between $3,321.37 million (Mecklenburg County) and $1.61 million (Camden County). The highest level of traveler expenditures in a nonurban county in 2009 was $766.56 million in Dare County, a coastal county with a population of less than 35,000. The county characterized as tourism rich with the lowest level of traveler expenditures in 2009 is Onslow County, which had traveler expenditures of $164.12 million. It is also on the coast and has a population of just less than 180,000.Even though Mecklenburg County attracts the highest amount of tourism dollars, it is not coded as tourism rich because it is coded as urban. Only suburban and primarily rural counties are designated as tourism rich.Onslow County is not coded as a tourism rich area from 2003 to 2005 because it falls below the threshold.
More than $150 million in real dollars from tourism moneyThe range of travelers’ expenditures by county for 2009, as an example, ranges between $3,321.37 million (Mecklenburg County) and $1.61 million (Camden County). The highest level of traveler expenditures in a nonurban county in 2009 was $766.56 million in Dare County, a coastal county with a population of less than 35,000. The county characterized as tourism rich with the lowest level of traveler expenditures in 2009 is Onslow County, which had traveler expenditures of $164.12 million. It is also on the coast and has a population of just less than 180,000.Even though Mecklenburg County attracts the highest amount of tourism dollars, it is not coded as tourism rich because it is coded as urban. Only suburban and primarily rural counties are designated as tourism rich.Onslow County is not coded as a tourism rich area from 2003 to 2005 because it falls below the threshold.
Jobs may change with the economy but vacationhabits change even more
Affects different areas differently:Tourism rich areas, for example, generate less revenue from property taxes but have high total property valuesComparatively low property tax ratesSo they are more dependent on LOST revenue
You can include other revenue streams in this discussion as wellIf you want to look at intergovernmental transfers from the state, etc
Though for ga they have to at least reconsider it and come to the table to negoitatie every 10 yrsLOST as proportion of total revenue .0334* (2.31)Number of municipalities in the county .00607*** (.372)City serves as county seat .0438*** (3.44)Proportion of county population .770*** (11.42)City population .000000157 (.86)City receives revenue from SPLOST (0, 1) .0159 (.03)Total jurisdictional revenue .0000000004 (1.56)Council–manager form of government .0114 (1.74)City assesses a property tax .00357 (.56)Constant .0341*** (3.41)
What are the options that munis have to raise revenues- can include those
More than $150 million in real dollars from tourism moneyThe range of travelers’ expenditures by county for 2009, as an example, ranges between $3,321.37 million (Mecklenburg County) and $1.61 million (Camden County). The highest level of traveler expenditures in a nonurban county in 2009 was $766.56 million in Dare County, a coastal county with a population of less than 35,000. The county characterized as tourism rich with the lowest level of traveler expenditures in 2009 is Onslow County, which had traveler expenditures of $164.12 million. It is also on the coast and has a population of just less than 180,000.Even though Mecklenburg County attracts the highest amount of tourism dollars, it is not coded as tourism rich because it is coded as urban. Only suburban and primarily rural counties are designated as tourism rich.Onslow County is not coded as a tourism rich area from 2003 to 2005 because it falls below the threshold.