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The City Journals

First month of sales tax numbers show uneven impacts of COVID-19

Jun 25, 2020 12:14PM ● By Justin Adams

Herriman had the biggest percentage increase in taxable sales from 2019 to 2020 with a 43% increase, and Murray had the biggest decrease with -16%.

By Justin Adams | [email protected]

The forced closure of many businesses in the Salt Lake Valley because of COVID-19 precautions was not only a concern for business owners, but also city governments whose monthly revenue is heavily dependent on sales tax distribution. However, there is a two month delay from the time the sales tax is collected to the time it gets deposited into a city’s account.

That meant that city leaders around the valley weren’t able to see the initial economic impact of COVID-19 on their city budget until the month of May, when the Utah State Tax Commission released its report for the month of March.

The report surprisingly showed that many cities in Salt Lake County saw increases in taxable sales relative to the same month in 2019 meaning people actually spent more money in spite of all the store closures. How could that be?

Interestingly, it seems that the smaller a cities’ economy is, the better they have fared so far during the pandemic. Of all the municipalities in Salt Lake County, the nine smallest economies all experienced increases in sales from March 2019 to March 2020. Of the six largest, four experienced decreases (Salt Lake City, Sandy, Draper and Murray).

Herriman City, for example, had less taxable sales than any other city in the county in March 2019, with just over $18 million. However, in March 2020, that number grew to $26 million. That’s a growth of 43%, the highest in the valley. (Of a city’s taxable sales, 1% of the sales tax goes toward local government, with half being allocated based on where the purchase occurred and the rest being allocated to cities based on population. Because of this, the amount of sales tax funds a city receives isn’t exactly proportional to the amount of taxable sales in that city.)

 

So what has caused cities with smaller economies to fare better during the pandemic? Basically, smaller cities have a higher proportion of “essential” businesses. In a smaller and younger city like Herriman, a larger portion of its businesses are things like grocery stores and fast food, which were able to not only stay open, but to even see record sales.

Herriman Assistant City Manager Tami Moody told the City Journals that what many consider a weakness of Herriman (it only has fast food and grocery stores) turned out to be a strength during this time.

“Herriman obviously has fast food and grocery industry. Those two have actually been the industries that have fared better than most. Fast food is already set up to have a drive-up window. When this all started, people were heading to the grocery store to make sure they had everything they needed,” she said.

On the other hand, cities which saw the biggest decreases in taxable sales had a few things in common. One, large shopping malls that were forced to close. With the closures of The Shops at South Town and Fashion Place Mall, Sandy and Murray saw -5.9% and -16.6% drops in taxable sales. Two, a couple of cities lost sales from the closure of venues for professional sports and other entertainment, such as Rio Tinto Stadium in Sandy and the Vivint Smart Home Arena in Salt Lake City. Interestingly though, West Valley City which has both a shopping mall and a major sports/entertainment venue, yet was still able to produce more sales tax than it had in 2019.

Of course, all these numbers come from March, the first month that the virus began to seriously impact the United States and people bought so much that they literally emptied grocery store shelves. The sales tax report numbers for April and May will likely yield more insights into the long-term impacts of COVID-19 on city budgets.