Page 28 - Hurst FY20 Approved Budget

Sales Tax Revenues

The second major financial consideration that guides the development of the budget for the
upcoming year is the projection of sales tax revenues. The city collects a total of 2% sales tax:
1% for General Fund; 1/2% for the Community Services Half-Cent Sales Tax Fund; and 1/2%
for the Anti-Crime Fund. It is a city policy to use a conservative approach in forecasting this
revenue. City sales tax collections reached their highest point in 2016. Sales tax receipts have
been as high as $10.82 million for the General Fund. To spur economic development, a portion
of total sales tax collections are shared with local businesses, including Simon Property Group
who owns North East Mall. For fiscal year, 2019-2020, total sales tax revenues are projected to
be down approximately 2.3% from the previous year’s General Fund budget and includes a $1.2
reserve for sales tax contingency. The economic contingency provides for impacts of economic
downturn and accounts for the potential loss of major retail businesses within the city. The Half-
Cent Community Development Corporation participates in the revenue sharing agreement with
Simon while the Anti-Crime Fund does not participate. All projections of sales tax revenues are
very conservative due to the volatility of this revenue source. Economic uncertainty and heavy
reliance upon retail sales contributes to sales tax volatility which is further compounded by
state-mandated sales tax holidays each year. These “holidays” have had an expected negative
effect on retail sales tax revenue, but this impact cannot be directly measured. The biggest
challenge in the multi-year financial planning process is projecting future sales tax revenues
due to the unclear impact of future economic development and redevelopment efforts in Hurst
and surrounding cities, uncertain economic conditions, e-commerce, regional competition, and
impactful legislation. Staff is cautious in planning for this revenue. Due to the sales tax sharing
agreements that are in place, the city builds into the budget only revenues that will remain after
the revenue is shared with business owners that entered into agreements with the city. The
Shops at North East Mall agreement with Simon started January 2002 and the North East Mall
agreement began in April 2003. The city reached an early payoff of the Shops portion of the
agreement in fiscal year 2008-2009. While the North East Mall agreement is scheduled to end in
2023 the city is not planning for that specific increase in sales tax revenue and we anticipate the
need to reinvest in the mall to ensure is continued success.

The city has been proactive in informing the state and federal congressional delegations of the
need to allow local control over tax policy and the need for an Internet sales tax. An important
issue is that local sales tax revenues could be adversely affected in future years should Texas not
remain origin-based in collection of sales taxes for “brick-and-mortar” sales. In Texas, taxes are
collected at the point-of-sale regardless of where goods are delivered (for most non-Internet
based sales). As such, local taxing units, not the state, can lose tax revenues under a scenario
where taxable sales delivered out of a taxing unit’s jurisdiction exceeds the value of taxable
sales delivered into their jurisdiction. Recent decisions by the U.S. Supreme Court now allows
states to require online retailers to collect sales tax. Some estimates project an additional $1.1
billion in sales tax for the State of Texas. The State Comptroller has released guidance for the
collection of online sales tax. In order to streamline the process for smaller online sellers that
do not currently remit sales tax, the Comptroller has calculated a blended rate and will allocate
revenue from these online sellers based upon a pro-rata share of each municipalities sales tax
base. The requirements took effect in October 2019, and will evaluate the impact of online sales
tax throughout 2019-2020.

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