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More on California Fiscal Policy: Where is the Growth in Sales Tax Transactions?

Published June 10, 2014

Sales tax sales volume has been weaker than expected in recent months. This has been a somewhat surprising result, given the improvement in the State’s other major revenues and the economy in general.

In an earlier part of the current economic expansion, namely between 2011 and 2012, the sales tax base grew at an annual rate of  7.8 percent. Car sales -- the single-largest identifiable part of the sales tax base -- grew at nearly double the rate of the overall sales tax base. In 2012, healthy growth occurred in bars, restaurants, clothing and furniture retailers. But sales were weaker for retailers of gasoline, electronics, and general merchandise.

To the extent the sales tax base reflects patterns in consumer income and behavior, it appears that consumers shifted their purchases during the early recovery to consumer durables and food services.

Historically, sales tax revenue has grown by about 2.9 percent per year since 2003. During that same 10-year period, corporate tax revenues grew at about 1.5 percent per year, while personal income tax revenues grew about 6.1 percent annually.