by Scott Richter and Dr. Patrick Jones
If the Beatles song was written about taxable retail sales instead of the person collecting the taxes, well, it might not be surprising if none of us had ever heard of the Beatles. Yet, we would still be on the hook for our rightful share of taxes we owe.
While there are all sorts of taxes consumers might pay, this article is looking at just taxable retail sales because they represent the majority of consumer spending and can help gauge the strength of any local economy. This information, on a quarterly basis, is the closest we can get to seeing real-time changes in the strength of a local economy.
Examples of items subject to sales tax include retail purchases on furniture, vehicles, computers, paint, clothing made at home & garden centers, department stores, restaurants, and grocery stores; goods and services purchased in agriculture, forestry, fishing, construction, finance & insurance, arts & entertainment, and real estate.
Taxable retail sales totals in Washington State do not include consumer retail sales where a tax is still assessed and included in the total amount a consumer spends. These include the gasoline tax, use taxes (paid by consumers on out-of-state purchases), and taxes on overnight lodging, as examples. The taxes on a gasoline purchase are technically a “special fuel tax” paid only on gasoline purchases, not a retail sales tax.
Purchases on groceries and prescription medications are exempt from the retail sales tax. A full list of goods and services subject to the retail sales tax in Washington State can be found here.
The current state sales tax rate is 6.5%. Purchases conducted anywhere within the state for qualifying goods and services will pay this sales tax rate, but in addition to 6.5%, a local sales tax with the rate varying by county and municipality, will also be owed.
For example, the current local sales tax rate is 1.8% in East Wenatchee; 2.0% in Wenatchee; 1.8% in Cashmere; and 1.2% in Bridgeport. So, the current combined local and state retail sales tax rate for each of these cities is 8.3%, 8.5%, 8.3%, and 7.7% respectively.
Together, the annual measurement of total taxable retail sales with a quarterly breakdown provides the most insight into consumer spending. Reaffirmed during 2020, each year presents a new set of unknowns and the quarterly measurement supplies us with greater detail.
This year the quarterly indicator is a little more insightful than usual because it shows some of the first economic data for a year where it seems everything has been impacted by a global pandemic.
Looking at Indicator 2.2.4: Quarterly Taxable Retail Sales, we see the combined counties had $684.8 million in taxable retail sales during the first quarter of 2020 and $779.1 million during the second quarter of 2020. Compared to the same quarters during 2019, the first quarter g declined by 6.7% and the second quarter by 9.2%. Certainly, one could argue a decline was to be expected; the question was by what amount.
The state growth rate from the first quarter of 2019 to the first quarter of 2020 was 4.1% but plunged to -12.6% from the second quarter of 2019 to the second quarter of 2020. Over the two quarters then, taxable retail sales in the two counties steered a similar course to that of Washington.
Going back another year in the combined counties to the first quarter of 2018, we can observe that taxable retail sales totaled $650.8 million. So yes, the first quarter of 2020 dropped from the first quarter of 2019, but not below the first quarter of 2018. From the second quarter of 2019 to the second quarter of 2020, taxable retail sales decreased by almost $80 million in the combined counties. This put the second quarter – undoubtedly the worst of the past year at approximately $18 million below the second quarter of 2018, yet roughly $45 million above the second quarter of 2017.
Considering the counties separately, it is worth noting that Chelan County follows a steady growth line quarter by quarter, with the first quarter of 2020 as the highest Q1 in the series with $451.7 million in taxable retail sales. The result of the second quarter, $504.0 million, was the lowest Q2 total since 2017.
In Douglas County, the fourth quarter of 2019 was the final of five consecutive quarters registering the highest on record. Unlike Chelan County, in the first quarter of 2020 taxable retail sales in Douglas County dropped below the first quarter of 2019 but remained above the first quarter of 2018. The second quarter of 2020 resulted in being the 6th highest quarter in the entire series for total taxable retail sales., showing a drop of only 5.2%.
So through the first half of 2020, it is helpful to keep in mind that taxable retail sales in Chelan and Douglas Counties combined have weathered the storm relatively well by producing results only one or two years removed from some of the highest taxable retail sales, both by quarter and annually, ever experienced.
To provide some perspective, consider the other version of this indicator on the Trend site: Total annual taxable retail sales. Here the measure increased every year from $1.8 billion during 2009 ending at $3.4 billion during 2019.
Not surprisingly, the combined counties have, in the longer term, experienced steady annual growth from the same quarter the previous year, setting a new high mark nearly each new quarter. This more than hints at a local economy with a strong backbone to weather the storm beyond 2020.
Overall, 2020 will likely be a year in which taxable retail sales decline. On a positive note, all forecasts are pointing to a recovery in 2021, but the pace of recovery is yet to be determined. At a national level, most expect a slow start to the year followed by a quickened pace by the second half. Of course, how well those expectations are met will depend on the pace of vaccinations, both here and in parts of the nation and region that the touch the greater Wenatchee economy.