SALES TAX TRENDS. Demographics...Technology... and Giving it Away. AGA Spring Conference May 8, 2014

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1 SALES TAX TRENDS Demographics...Technology... and Giving it Away AGA Spring Conference May 8, 2014

2 Central Coast Counties 13 YEAR HISTORY All Agencies Combined

3 Central Coast Counties Combined BRADLEY-BURNS ONE CENT TAX BY ECONOMIC SEGMENT.. $24,000,000 $20,000,000 $16,000,000 $12,000,000 $8,000,000 $4,000,000 General Consumer Goods Restaurants and Hotels Fuel and Service Stations Autos and Transportation Business and Industry Building and Construction Food and Drugs

4 Proposition 172 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Santa Cruz County Monterey County San Benito County Bradley Burns Prop 172

5 Proposition 172 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $ est San Benito County Monterey County Santa Cruz County

6 CALIFORNIA TOTAL DOLLARS vs. PER CAPITA ADJUSTED FOR CPI (1998 BASE) $1,100 $7,000,000,000 $1,050 $6,000,000,000 $1,000 $5,000,000,000 $950 $4,000,000,000 $900 $3,000,000,000 $850 $2,000,000,000 $ $1,000,000,000 Source = CA Dept. of Finance Per Capita Adjusted for CPI California Total Dollars

7 THE Acceleration of A Trend Sales Tax Collections as a Percentage of Personal Income 60 Revenue From a 1% Sales Tax Rate as a Percentage of Personal Income

8 SPENDING PRIORITIES MOVING FROM TAXABLE GOODS.. 27% Increase in Household Spending : Housing Healthcare Food Entertainment Education Entire gain by top 20% income Households Household spending by remaining 80% declined.

9 15% Wages & Salary - Long Term Deflation 13% 11% 9% 7% 5% 3% 1% -1% -3% -5% Recessions Compensation of Employees, Received: Wage and Salary Disbursements Poly. (Compensation of Employees, Received: Wage and Salary Disbursements) Source: St. Louis Federal Reserve

10 Declining Prices of Tangible Goods Technology reducing cost of goods autos, apparel, electronics. On-line shopping forcing increased price competition. Shopping Habits of Affluent shifting downward.

11 Technology Reducing What is Taxable Digitally transferred goods not considered as tangible personal property books, music, movies, etc. Cloud computing services eliminating need for business investment in taxable hardware, software and infrastructure. Litigation expanding definition of non-taxable goods Lucent Technologies Nortel Networks Energy efficiency will be reducing taxable fuel purchases. On the way.virtual stores and 3-D printers.

12 CALIFORNIA S POPULATION IS AGING Percentage of Those 65 or Older Data Sources: California Department of Finance 2012; U.S. Census Bureau 2008 Analysis: Stanford Center on Longevity

13 TAXABLE SPENDING DECLINES WITH AGE

14 Then come the cheapskates.. The Millennials (Generation Y) o Lower Financial Expectations o Urban Dwellers o Education & Social Networking over Stuff o Traders, Renters, Borrowers, Recyclers

15 1,400 1,200 Percentage Growth in E-Commerce Retail Sales E-commerce Sales versus Total Retail Sales (Billions of Dollars) , Source: U.S. Census Bureau (p)=preliminary Estimate

16 California s 2013 Holiday Quarter

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18 Gone: TRADITIONAL RETAIL CONCEPTS. Anchor Blue, Bassett Furniture, Blockbuster Video, Bombay Company, Borders Books, Cala Foods, Circuit City, Coldwater Creek, Comp USA, DEMO, Discovery Channel Stores, Geoffrey Beene, Good Guys, Gottschalks, Great Indoors, Hollywood Video, Home Expo, KB Toys, Linens N Things, Linder's Furniture, Loehmann s, Maytag Stores, Mervyns, Petite Sophisticate, Rent A Center, Ritz Cameras, Sharper Image, Shoe Pavilion, Smith & Hawken, Steve & Barry, Tower Records, Virgin Mega Stores, Walden Books, Wickes Furniture, Wild Oaks Markets, Wilson s Leather, Yard Birds Reducing Number of Stores: Abercrombie & Fitch, Aeropostale, Albertsons, Barnes and Noble, Best Buy, 84 Lumber, Foot Locker, fresh & easy, Game Stop, Gap, J.C. Penny, K-Mart, Lowes, Men s Wearhouse, Office Depot, Old Navy, Payless Shoes, Pier One, Radio Shack, Raley s, Saks, Sears Holding, Staples, Talbots, Thomasville Furniture..

19 SHRINKING POINTS OF SALE FROM BRICK AND MORTAR RETAILERS. Stores downsizing to become Touch & Feel showrooms for online sales. Focus on shopping environment & experience rather than large inventories. Increased market saturation with smaller, low overhead stores and kiosks in more or temporary locations.

20 SALES TAX KICKBACKS & THE SHRINKING PIE.. Bidding of kickbacks for points of sale at an all time high 85% To Owens & Minor, 80% to Kohl s, 75% to Home Depot, 70% to Office Depot, 65% to CDW, 55% to Pottery Barn/Williams Sonoma, 50% to CEMEX, etc., etc. 20% to 30% of Bradley-Burns revenue pie rebated back to corporate bottom lines. The smaller the pie, the more desperate the bidding..

21 CITIES WITH TRANSACTIONS TAX DISTRICTS APRIL 2014 Albany Dinuba La Mirada Pico Rivera San Mateo Truckee Antoich El Cajon Lakeport Pinole San Pablo Tulare Arcata El Cerrito Larkspur Pismo Beach San Rafael Ukiah Arroyo Grande El Monte Lathrop Pittsburg Sand City Union City Arvin Eureka Los Banos Placerville Sanger Vacaville Atwater Fairfax Mammoth Lakes Point Arena Santa Cruz Vallejo Avalon Fairfield Manteca Port Hueneme Santa Maria Visalia Calexico Farmersville Marina Porterville Santa Monica Vista Campbell Fort Bragg Merced Reedley Santa Rosa Watsonville Capitola Galt Montclair Richmond Scotts Valley West Sacramento Carmel Grass Valley Moraga Ridgecrest Seaside Wheatland Cathedral City Greenfield Morro Bay Rio Vista Sebastopol Williams Ceres Grover Beach Mount Shasta Rohnert Park Selma Willits Clearlake Gustine National City Sacramento Soledad Woodland Commerce Half Moon Bay Nevada City Salinas Sonoma Concord Healdsburg Novato San Anselmo Sonora Corte Madera Hercules Oakdale San Bernardino South El Monte Cotati Hollister Orinda San Fernardo South Gate Culver City Huron Oxnard San Francisco South Lake Tahoe Davis Inglewood Pacific Grove San Juan Bautista Stockton Del Rey Oaks La Habra Palm Springs San Leandro Tracy Delano La Mesa Paso Robles San Luis Obispo Trinidad

22 The Bottom Line. Demographics and social changes reducing amount of tangible purchases. Technology converting purchases from tangible to non-taxable intangible goods. Prices of remaining tangible goods declining. Future tax growth shifting to Distribution Centers and concentrated in just a few jurisdictions. Majority of taxes from distribution centers kicked back to corporations instead of public services.

23 Time for serious policy discussion What is taxed.current base has no relevancy to this century s economy. How it is distributed.allocate via destination as do the majority of other states? Standards for tax rebates Eliminate the if we don t do it, the city next door will problem.

24 We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Bill Gates, The Road Ahead.1996 Questions/Comments? (909) Lloyd de Llamas 5/8/14