Economic expansion in Texas contributes to 62 consecutive months of sales tax revenue increases

By The Honorable Talmadge Heflin & Mary Katherine McNabb

Texas Comptroller Glenn Hegar recently announced that sales tax collections increased for the 62^nd consecutive month, with $2.6 billion collected in May to be distributed in June. This is a 5.2 percent increase during the last year showing a continued pattern of growth in the Lone Star State.

Chart 1 presents historical data for total sales tax revenue, includes state and local, for the first five months of 2014 and 2015 showing  consistently higher revenue this year.

Chart 1: Total sales tax revenue in January-May 2014 compared with January-May 2015

As expected, there is a surge in sales tax revenue during the Christmas holiday season, causing a spike in sales tax revenue in January from sales in December to be distributed to local jurisdictions in February.

Allocations of those sales taxes between the state and local governments do not necessarily follow the same pattern as total sales tax revenue. Local allocations go to cities, counties, transit systems, and special purpose taxing districts. Chart 2 shows that there is no clear association between changes in allocation for any of the four recipients compared with changes in revenue in the past 17 months.

Chart 2: Texas cities receive most of the local sales tax allocations

Chart 3 indicates positive increases in all revenue amounts except for counties during the last year.

Chart 3: State Sales Tax Revenue Increased During the Last Year

State sales tax revenue is an important metric for Texas since it accounts for about 55 percent of all state funds.

While some believe that the state’s tax revenue may decline because of the drop in oil prices and associated fall in oil and natural gas production tax revenue, state sales tax revenue may more than compensate for this decline.

This would be from lower gasoline prices providing Texans with more money to save or spend as they see fit, potentially contributing to higher sales tax revenue. Moreover, Texas is a highly diversified economy that’s not as dependent on the oil and gas sector for tax revenue or otherwise as it was in the 1980s.

Sales tax revenue in Texas continues to be evidence of a prosperous economy as it shows that businesses produce goods that consumers demand.

For taxes to remain a low burden on Texans, which the Tax Foundation finds that the state and local tax burden on Texans is the fourth lowest nationwide, legislators must continually pass conservative budgets that increase by no more than the lowest rate of population growth plus inflation, gross state product, or personal income for the last two fiscal years—which the 84^th Texas Legislature did.

Collectively, the Texas model of low taxes, including no individual income tax, less regulation, and a good lawsuit climate provides an essential path to greater prosperity.