PHIL HARDWICK: Sales tax collections as an economic indicator

Phil Hardwick

Phil Hardwick

Small business makes a substantial contribution to the economic health of cities in Mississippi. Small businesses not only provide jobs, their sales tax collections are a significant source of revenue for their communities. That makes them economic development engines.

Although the term “economic development” has no standard definition, it is generally agreed that economic development is “the process of increasing the wealth of a community.” So how do we measure the wealth of a community? To be sure, there are many perspectives on wealth. Quality of life is wealth to some, an educated workforce to others, a strong economy to even others.

Because a city is a corporation, let’s apply this idea of wealth in the way that an investor or an accountant might value a corporation. There are two important measures (statements) in every investment analysis: the balance sheet and the income statement. One perspective is to look at the assessed value of real estate as the balance sheet and sales tax collections as part of the income statement. It is noted that sales tax collections are not the only source of revenue for cities, but they are a good measure of the economic activity of a city.

The number of employees, while important and is an indicator of the overall economic health of a company, it is not the measure of value – or wealth – of a company. Indeed, some companies have seen their values increase by reducing the number of employees. Another way of looking at the concept would be to consider whether a community would rather have 20 new minimum wage jobs versus whether 100 existing highly paid employees received a 20 percent increase in pay from their out-of-state employer. It might very well be that in such an example that more money came to the community in the latter case.

Having said all that, I was intrigued by the list of sales tax collections as published in a recent issue of the Mississippi Business Journal. As mentioned above, sales tax collections, although not the only source of revenue for a city or town, nevertheless offer a good clue to the economic health of a community. Comparing sales tax collections for a given period versus another period is useful to chart what economic course a city may be on.

Having let curiosity got the best of me, I compared the sales tax collections of the 10 largest cities by sales tax collections by Year to Date 2014 vs Year to Date 2013, and then calculated the percentage change in each. The results were as follows:

 

City                             YTD 2013                    YTD 2014                   % Change

 

1. Jackson               $28,960,211             $29,094,541                 .005

2. Hattiesburg        $19,353,416              $19,699,766                 .018

3.Gulfport                $17,353,416              $17,925,577                 .033

4.Tupelo                   $16,360,649             $16,464,251                 .063

5.Meridian               $13,190,549             $13,654,718                .035

6.Southaven            $11,424,967              $11,786,586               .032

7.Ridgeland            $11,352,511               $11,741,799                .034

8.Biloxi                    $9,964,537                $10,192,708               .023

9.Flowood               $9,468,575               $9,782,701                 .033

10.Laurel                 $8,425,749               $8,858,463                .051

 

I then identified the 10 municipalities with the lowest tax collections and performed the same calculations.

 

1.Falcon                    $572                           $1,258                           119.9

2.  Eden                     $596                            $756                               26.9

3.  Paulding             $1,258                        $1,644                             30.7

4.  Gattman             $1,374                         $1,371                          (.002)

5.  Sn. Lake Shores      $1,610                  $4,302                           167.2

6.  Paden                  $1,778                         $2,169                            22.1

7.  Beauregard        $2,663                        $2,542                           (.045)

8.  Sylvarena           $3,441                        $3,086                          (.103)

9.  Glendora            $3,769                        $4,725                            25.4

10. Winstonville    $3,935                         $2,477                           37.1

Based on the above information, it appears that large cities in Mississippi are seeing moderate growth in their economies. From the small cities list it is obvious that small increases or decreases make a big difference in revenue to a small town. Jack Shultz, author of Boomtown USA: The 7 ½ Keys to Big Success in Small Towns, calls it the “teeter-toter effect,” meaning that small increases or decreases have a greater effect in small towns. The point of this is to illustrate the usefulness of sales tax collections as an economic measurement.

Here’s hoping your business and your city’s sales tax collections continue to grow.

 

» Phil Hardwick is coordinator of capacity development at the John C. Stennis Institute of Government. Pease contact Hardwick at phil@philhardwick.com

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