SALES T
SALES TAX…THE FUTURE
California Society of Municipal Finance
Officers
February 21, 2013
20
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Revenue From a 1% Sales Tax Rate as a
Percentage of Personal Income
THE PROBLEM THAT NO ONE
IS TALKING ABOUT…
Sales Tax Collections as a Percentage of Personal Income
60
50
40
30
SPENDING PRIORITIES ARE MOVING
AWAY FROM TAXABLE GOODS…..
27% Increase in Household Spending 2000 -2010:
 Housing
 Healthcare
 Food
 Entertainment
 Education
Entire gain by top 20% income Households – Household
spending by remaining 80% declined.
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.
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
TAXABLE SPENDING
DECLINES WITH AGE
After the Aging Baby Boomers 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
THEIR FUTURE IS ONLINE…...
Sources: Boston Consulting Group, Fast Company Design
TECHNOLOGY IS CHANGING
HOW WE SHOP
and the distribution of taxes…….
7% of retail transactions on-line, projected to grow to 9%
by 2016…shift of tax to location of fulfillment distribution
centers rather than stores.
Food Trucks a $2.7 Billion industry by 2017. Shift of tax
from brick and mortar restaurants to pools.
No tax on electronic downloads of books, movies,
music…anyone remember when photos required film for
the camera?
The Future Is Here
and Accelerating….
Smart Phone Apps - Tablets
same day delivery – free returns
mobile wallets
Q.R (quality response) codes
On The Way…
•
•
•
•
Interactive T-V
Virtual Stores
Digital Fitting Rooms
3-D Printers
Percentage Growth in E-commerce
Sales versus Total Retail Sales
1,200
(Billions of Dollars)
60
1,000
50
800
40
600
30
Retail Sales
E-commerce
400
20
200
10
0
Source: U.S. Census Bureau
0
THE COMING SHIFTS IN RETAIL WILL
ALSO SHIFT SALES TAX REVENUES….
• 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.
TRADITIONAL RETAIL CONCEPTS….
Gone:
Anchor Blue, Bassett Furniture, Blockbuster Video, Bombay Company, Borders
Books, Cala Foods, Circuit City, Comp USA, DEMO, Discovery Channel Stores,
Famsa, Geoffrey Beene, Good Guys, Gottschalks, Great Indoors, Hollywood Video,
Home Expo, KB Toys, Linens N Things, Linder's Furniture, 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, Albertsons, Barnes and Noble, Best Buy, 84 Lumber, Foot
Locker, fresh & easy, Game Stop, Gap, J.C. Penny, K-Mart, Loehmann’s, Lowes,
Men’s Wearhouse, Old Navy, Payless Shoes, Pier One, Raley’s, Saks, Sears,
Staples, Talbots, Thomasville Furniture…..
CONSTANT NARROWING OF THE
BASE WITH MORE EXEMPTIONS…
ADMISSION CHARGES
AIRCRAFT LEASES (FOREIGN)
AIRCRAFT SALES (FOREIGN)
ALTERATION OF GARMENTS
ALTERNATE ENERGY PROJECT
ANIMAL LIFE, FEED, SEEDS
ART TRANSFERS (ENTERTAINMENT)
ART WORKS
AUXILIARY SVCS TO MUSEUMS
BLOOD STORAGE UNITS
BRACELETS - POW
“BUDDY POPPIES”
CA GOLD MEDALLIONS
CA SCIENCE CENTER
CARBON DIOXIDE
CASH DISCOUNTS
CHARITABLE ORGANIZATIONS
COGENERATION TECHNOLOGY
COMMON CARRIERS
COMPONENTS – RAILROAD
CONSTRUCTION OUTSIDE CA
CONSUMER COOPERATIVES
CONTAINERS
CREDIT – TAX TO OTHER STATES
CUSTOM COMPUTER PROGRAMS
DELIVERY TO EXPORT PACKERS
DEMONSTRATION AND DISPLAY
DIESEL AND USE FUEL TAX
DIESEL FUEL – FARM & FOOD PROC
DONATIONS
ENDANGERED ANIMALS/PLANTS
EXCISE TAX ON FUEL
FACTORY BUILT HOUSING
FACTORY BUILT SCHOOL BLDGS
FARM EQUIPMENT
FEDERAL EXCISE TAXES
FINANCE CHARGES
FOOD PRODUCTS
FOOD – VENDING MACHINES
FOOD STAMP PURCHASES
FOREIGN GOVERNMENTS
FRIENDS OF LIBRARY
FUEL - ORGANIC
FUEL – AIR COMMON CARRIERS
FUNGIBLE GOODS
GAS, ELECTRICITY, WATER, STEAM
GROUND CONTROL STATIONS
HAY PRODUCERS
HEALTH/SAFETY MATERIALS
HOT FOOD – AIR CARRIERS
ICE OR DRY ICE
INDIAN TRIBAL TAXES
INSTALLATION LABOR
INTANGIBLE PERSONAL PROP
INTERSTATE/FOREIGM COMMERCE
LEASE OF MOTION PICTURES
LEASE, CERTAIN PROP EXCLUDED
LEASES OF MOBILE TRANS EQUIP
LEASES OF MOBILE HOMES
LEASES OF OCCASION. SALE PROP
LEASES PROPERTY – TAX PAID
LOANS TO CUSTOMERS
LOCAL TAXES
LODGING
MAILING LISTS
MASS COMMUTING VEHICLES
MASTER RECORDS & TAPES
MEALS TO ELDERLY/DISABLED
MEALS BY INSTITUTIONS
MEALS, ELDERLY CONDO
MEALS, LOW –INCOME ELDERLY
MEDICAL ID TAGS
MEDICAL HEALTH INFORMATION
MEDICATED FEED & WATER
MONETIZED/NON BULLION & COINS
MOTION PICTURE PROD PARTNERS
MOTION PICTURE PROD SVCS
MOTOR VEHICLE FUEL
MOTOR VEHICLE FEES & TAXES
MUSEUMS
NEW MOBILE HOMES
NEW TRAILERS
NEW VEHICLES – FOREIGN RES
NEW VEHICLES – OUT OF STATE
NEWSPAPERS/PERIODICALS
NONPROFIT – KID’S CLOTHES
NONPROFIT - AUCTION
NONPROFIT - HANDCRAFTED
NONPROFIT – THRIFT STORE
NONPROFIT – VETERANS’ ORG
NONPROFIT – VETERAN MEALS
OCCASIONAL SALE - BUSINESS
OCCASIONAL SALES
OXYGEN DELIVERIES
PARENT-TEACHER ASSOC .
PARENT COOP NURSERY SCH
PASSENGER VEHICLES
PERIODICALS
PET ADOPTION
POLLUTION CONTROL
POULTRY LITTER
PRESCRIPTION MEDS
PRINTED SALES MATERIAL
PRINTING MATERIALS
PROFESSIONAL HEALTH SVCS
PROPERTY LOANED – EDUC
PUBLIC PASSENGER VEHIC
PURCHASES – FOREIGN CTRY
PURCHASES FROM UNITED STS
RACEHORSE BREEDING
RAIL FREIGHT CARS
REAL PROPERTY
RELIGIOUS ORGANIZATIONS
RENTAL RECEIPTS – OUT OF CA
RENTAL – HOUSE FURNITURE
RENTAL – LINEN SUPPLIES
RETURNED MERCHANDISE
SALE & LEASEBACK ARRANGE
SALES FOR RESALE
SAN DIEGO AEROSPACE MUSEUM
SCHOOL YEARBOOKS
SECURITIES
SERVICES
SPACE FLIGHT PROPERTY
STATE GOVERNMENTS
STORAGE & USE
STUDENT MEALS
TAX-PAID PURCHASES RESOLD
TELEPHONE LINES/POLES
TELEPRODUCTION EQUIP
TIMBER HARVESTING EQUIP
TRAILERS – NEW OR USED
TRANSPORTATION CHARGES
TRANSPORTATION OF LANDFILL
TRAVEL ACCOMODATIONS
UNITED STATES SALES
USE OF PROPTY HELD FOR SALE
USED FLOATING HOMES
USED MOBILE HOMES
VEHICLE MODS - HANDICAPPED
VEHICLES LOANED TO NIVERSITY
VEHICLES PURCHASED OUT OF A
VEHICLES SOLD TO FAMILY
VEHICLES SOLD TO FOREIGN RES
VEHICLES SOLD TO LESSEE
VEHICLES – SAME OWNER
VENDING MACHINE SALES
VENDING MACHINE SALES - FOOD
VESSELS
VETERINARIANS
WATER COMMON CARRIERS
WATERCRAFT
WHEELCHAIRS & WALKERS
WORTHLESS ACCOUNTS
YOUTH ORGANIZATIONS
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, 70% to
Office Depot, 65% to CDW, 50% to Target Stores, 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….expect sales tax to shrink even more.
CITIES WITH TRANSACTIONS TAX
DISTRICTS—APRIL 2013
Albany
Arcata
Arroyo Grande
Arvin
Avalon
Calexico
Campbell
Capitola
Carmel
Cathedral City
Ceres
Clearlake
Commerce
Concord
Cotati
Culver City
Davis
Del Rey Oaks
Delano
Dinuba
El Cajon
El Cerrito
El Monte
Eureka
Fairfax
Fairfield
Farmersville
Fort Bragg
Galt
Grass Valley
Greenfield
Grover Beach
Gustine
Half Moon Bay
Healdsburg
Hercules
Hollister
Inglewood
La Habra
La Mesa
La Mirada
Lakeport
Lathrop
Los Banos
Mammoth Lakes
Manteca
Marina
Merced
Montclair
Moraga
Morro Bay
Mount Shasta
National City
Nevada City
Novato
Oakdale
Orinda
Oxnard
Pacific Grove
Palm Springs
Paso Robles
Pico Rivera
Pinole
Pismo Beach
Pittsburg
Placerville
Point Arena
Port Hueneme
Porterville
Reedley
Richmond
Ridgecrest
Rio Vista
Rohnert Park
Sacramento
Salinas
San Bernardino
San Francisco
San Juan Bautista
San Leandro
San Luis Obispo
San Mateo
San Pablo
San Rafael
Sand City
Sanger
Santa Cruz
Santa Maria
Santa Monica
Santa Rosa
Seaside
Sebastopol
Selma
Soledad
Sonoma
Sonora
South El Monte
South Gate
South Lake Tahoe
Stockton
Tracy
Trinidad
Truckee
Tulare
Ukiah
Union City
Vacaville
Vallejo
Visalia
Vista
Watsonville
West Sacramento
Wheatland
Williams
Willits
Woodland
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.
• Majority of taxes from distribution centers kicked
back to corporations instead of public services.
..
………….. NOW WHAT?
21st Century
Sales and Use Tax Structure
• Lower rates and more economic flexibility from
taxing services.
• Correct the Nexus deficiency in Transactions Tax
Override Districts.
• Limitations and standards for Sales Tax Sharing
Agreements.
• Consider destination based sales tax distribution.
21st Century
Economic Strategies
• Updated commercial/retail standards.
• Mixed Use – Hotel/Retail, residential/retail,
entertainment.
• More focus on business and industry.
• Diversification, diversification, diversification.
(909) 861-4335
www.hdlcompanies.com
Lloyd de Llamas 2/21/13