Declining tax collections troubling economic news

Counterbalancing the good news about economic recovery in the Grand Valley is the increasingly worrisome news about sales tax collections.

According to the latest monthly reports, sales tax collections dropped on a year-over-year basis 4.4 percent in Mesa County and 4.1 percent in Grand Junction. The declines are doubly troublesome because they reflect sales in December and what for many retailers is the important holiday shopping season. Moreover, tax collections from December sales usually constitute the single biggest month of revenue from that source for the county, city and other local government entities.

Declining sales tax revenues from December sales could be attributed in part to what’s typically a larger proportion of online sales during the holidays, which aren’t taxed. And that opens a can of worms about whether or not Internet sales should be taxed.

Unfortunately, declining sales tax collections in the Grand Valley go back further than December and the holiday shopping season. Tax collections for the county and city have dropped on a year-over-year basis in five out of the last six months. Thanks to gains in the early part of 2012, total tax collections for the county and city last year still came in above 2011.

Government administrators have budgeted for similar increases in sales tax collections 2013. But if declines continue, they’ll be forced to revise those projections downward. And county commissioners and city council members will be forced to adjust budgets.

It’s heartening some aspects of the Grand Valley economy reflect continued recovery, in particular the way the real estate market has rebounded. But it will be important to closely monitor monthly sales tax reports to find out what they say about retail sales and government budgeting.