Sales tax revenues totaled $2.98 billion, a 4.9 percent increase from the same month in 2019 and up significantly from the 14 percent decrease in the last report.
Total tax collections are up nearly 60 percent from July of 2019, to a total of $8.4 billion.
For clarity, sales tax numbers are based on receipts received from the previous month in which they were remitted by the comptroller — in this case, from July while reported on August 3. But those receipts are from transactions made in the month previous, June, in this case.
Compared with the original projection for the biennium, this month’s tax collections show a 40 percent increase above projections. This is based on the average monthly projected revenue, the best approximation available due to the fact that a total biennium figure is given, not a month-to-month projection.
But because of this month’s strong performance — and due to stronger-than-projected tax revenue collections in January and February when the economy was roaring — the 2020 tax revenues are only 1.5 percent lower than the original projections.
The massive increase can largely be attributed to an over 8,700 percent increase in the amount of franchise tax revenues brought in. Franchise taxes are collected en masse during the month of the tax deadline. Normally that falls in April, but due to the pandemic, it was delayed to July, which explains why it is such an outlier compared with July in past years.
The franchise tax collections fiscal year-to-date are 4.8 percent above 2019’s level during the same period.
Once it became clear recovery to pre-pandemic levels was a long way off, Hegar adjusted the tax revenue projections, now estimating a $4.6 billion budget shortfall compared with what was planned for at the beginning of the biennium.
For most of June, the state was reopened for business after an extended period of time with various levels of closure orders.
Comptroller Hegar noted, “State sales tax collections in July were better than expected, increasing despite the high unemployment due to the pandemic. The increase was due to a surge in collections from the retail trade sector; receipts from other major sectors — including mining, construction, wholesale trade, services and restaurants — showed significant declines.”
He also pointed to online sales which spiked sharply as consumers directed more money toward online purchases rather than brick-and-mortar stores.
“With about 1.3 million Texans with continued claims for insured unemployment and another 184,000 receiving benefits under the Pandemic Unemployment Assistance program in June, it’s likely that consumer spending was significantly supported by enhanced benefits provided by the federal CARES Act and related legislation enacted in response to the COVID-19 pandemic,” he continued.
Hegar projects a decline in this figure in the coming months, especially should Congress fail to issue a next-phase relief bill replenishing the unemployment benefits and issuing another round of direct payments.
An always-crucial area of focus is the state’s struggling oil and gas industry. In July, oil and natural gas production taxes brought in 40 and 72 percent less revenue, respectively, than in 2019.
Oil had been hit more harshly by the economic downturn and travel reduction, but this report shows natural gas producers are contracting their production as well.
The president visited the Permian Basin last week to show support for the industry where he signed multiple pipeline permits, of which one in particular will run from Texas to Mexico.
In late June, Governor Abbott reclosed establishments like bars and further limited operating capacities for restaurants which will likely depress the revenues come next month.
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Brad Johnson is an Ohio native who graduated from the University of Cincinnati in 2017. He is an avid sports fan who most enjoys watching his favorite teams continue their title drought throughout his cognizant lifetime. In his free time, you may find Brad quoting Monty Python productions and trying to calculate the airspeed velocity of an unladen swallow.