2010 sales tax analysis paints erratic picture

Editor’s note: Roby Brock, with our content partner Talk Business, wrote this report. He can be reached at [email protected]

Sales tax collections in 16 key Arkansas cities underscore the struggling rebound in consumer spending throughout the state. (See chart below).

A new analysis by Arkansas Tech University in conjunction with Talk Business shows that 8 major cities had a higher annual growth rate in their sales tax collections than the state rate, while 8 cities trailed the state growth average.

Bentonville performed the best among the 16 cities as its sales tax growth pushed 10.37% higher than the statewide average in the fourth quarter of 2010 and 14.25% higher for the full year.

Searcy experienced the biggest decline by comparison. Searcy’s sales tax decline was 7.04% lower than the state average in the fourth quarter and 9.41% lower for the full year.

Dr. Julie Trivitt, assistant professor of economics at Arkansas Tech University’s College of Business, offered this analysis:

For 2010 sales tax collections in the state rose 1.2 percent from the previous year which indicates an increase in economic activity.  For 2010 this number understates the true uptick since three acts to reduce sales tax rates on some goods (Act 436, Act 691, and Act 695) went into effect July 1, 2009. If you compare sales tax collections for the 4th quarter, where sales tax laws were consistent in both years, there is a 2.3 percent increase from the same quarter of 2009.

Going forward, the sales tax collection trend in 2011 will also be somewhat misleading since a number of tax code changes are scheduled to go into effect during the year. In July, sales taxes on some items are reduced and Arkansas will have a sales tax holiday weekend in August.  However, in October the state’s “Amazon” law goes into effect requiring some out-of-state retailers to collect Arkansas sales tax. The trends we see in monthly sales tax collections for 2011 will reflect tax code changes and overall economic conditions combined with business and consumers responses to changes in the tax code.

Sales tax collection data need to be adjusted for seasonal variation and tax code changes to provide clean measures of taxable sales.

Although we cannot use raw sales tax data as a reliable measure of taxable sales, if we assume the entire state experiences the same seasonal fluctuations and inflation, we can use local variation as an indicator of local economic health. To do this we compare the local sales tax growth rate to the statewide growth rate.

From these numbers it seems the economic growth is still concentrated in the northwest quadrant, but much of the variation between 2009 and 2010 among cities in Washington and Benton counties is potentially explained by the closing of the Sam’s Club in Springdale and opening of Sam’s Clubs in Fayetteville and Bentonville.