Sales tax revenues up, boosting county governments hit by high inflation

County-level sales tax distributions were up 5.2% statewide in the first six months of 2022. Warren (6.7%), Butler (5.4%), Montgomery (5.3%), Greene (4.7%), Preble (2.8%), Miami (1.8%) all saw increases. The only counties where sales tax distributions declined were Clark (-0.5%) and Champaign (-3.4%) counties.

The 5.75% state sales tax goes entirely to the state’s general fund. Counties then levy varying amounts of their own sales tax on top of that (up to 2.25%) for either their general fund, or for a specific purpose, such as building a jail.

Sales tax and the economy

Sales tax receipts are also one of many measures of the U.S. economy. Every local county’s sales tax revenue for the first half of 2022 was at least 20% higher than the first half of 2019, the last pre-pandemic year. However, that does not mean there has been 20% economic growth, said Kevin Willardsen, associate professor of economics at Wright State University.

Ohio’s actual growth rate is probably somewhere around 4-5%, after sales tax gains are sucked up by inflation, and due to the decline of real disposable income. Inflation has been hovering around 9% just this year, and Americans’ saving and spending money is back down to 2019 levels, now that pandemic-era stimulus cash is gone.

“Over the last year and a half, people have had a lot of disposable income that they’re they’ve now spent, and it likely is the case that spending will come down,” he said. “It moves consumption forward in time: Instead of saving up to buy in 2022, if you have the disposable income, you buy in 2021.”

Due to being in a “good position” of having relatively cheap housing, a relatively educated workforce and a “middle-of-the road,” regulatory structure, Ohio has likely made some progress where other states have not, Willardsen said.

“Investment is coming to Ohio,” Willardsen said. “As long as there continues to be prudent policy and moderate taxation, I don’t see any reason why the growth in places, especially around Columbus, wouldn’t continue.”

“Positive increases in consumption always look good. At least they’re not negative. But let’s see what the numbers look like in six months,” he added.

Online buying and taxes

Online transactions, including everything Ohioans buy on Amazon, are also subject to state and local tax. For online retailers based in Ohio, it’s the business owner’s responsibility to collect sales tax and pay it to the state.

Out-of-state retailers must start paying sales tax to the state when they surpass $100,000 of gross sales in Ohio or 200 or more transactions with Ohio customers, said Gary Gudmundson of the Ohio Department of Taxation. More rarely, the purchaser is responsible for paying sales tax when they file their taxes in April. This is the case when the seller does not collect state and local sales tax, such as in international transactions.

Impact on local governments

** Greene County: sales tax revenue accounts for roughly 50% of the county’s total annual revenue supplying the general fund. The county is also facing an increase in costs to construct a new County Jail, which will require the county to draw on more of its cash reserves than was planned, said County Administrator Brandon Huddleson.

“If we see any net gain due to increased revenue, it will be used to replenish our reserves,” Huddleson said.

** Montgomery County: The sales tax revenue budget here is $110 million — about 58% of the total general fund, or 9.7% of the total County budget of $1.1 billion. County spokesman Kevin Lavoie said sales tax revenue through August is $79,766,029 or 72.6% of the expected total.

Lavoie said the additional sales tax dollars provide flexibility to continue the funding of Preschool Promise, the ED/GE program, arts and culture, adult workforce and youth career services, and building improvements, as well as capital improvements like the new municipal court in Trotwood and the Westown Employment Opportunity Center.

** Warren County: Increases in sales tax revenue meant that Warren County commissioners were able to implement a tax holiday for residents in 2022, Deputy County Administrator Martin Russell said. Sales tax revenue is typically 49.4% of the total amount Warren County collects in a year. However, sales tax will make up a larger percentage in 2022, as no real estate tax will be collected because of the tax holiday.

Warren County’s money has gone toward capital projects like improvements to the Probate/Juvenile Court, the upcoming County Court expansion, a $10 million down payment on the new Sheriff’s Office and County Jail, and road improvements.

** Miami County: Sales tax revenue accounts for 37% of the budget in Miami County. While there have been no changes in operations, projects have become a bit larger due to extensive work or staffing requirements, said administrator Charlotte Colley. The Commerce Center, the Fairground project, and the facilities master plan are all projects that have seen cost increases.

“Costs of many items are increasing, likely due to inflation, and we are having to absorb theses costs in order to procure goods and services,” Coffey said. “We have tentatively budgeted for courthouse renovations, hearing room renovations, and various IT upgrades in the 2023 budget but we won’t have the final list until later in the year.”

This story contains information from staff writers Parker Perry and Ed Richter, and contributing writer Nancy Bowman.