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Sales tax up, and so are gas prices

Sales tax revenues in Archuleta County (a leading economic indicator) showed a marked 4.74 percent increase in February (relative to the same month in 2010) and the biggest increase since April 2010.

That increase follows months of relatively flat growth during the last two quarters of 2010 and during January of this year.

When Pagosa Springs Town Manager David Mitchem reported February’s sales tax revenue increase during last Thursday’s mid-month council meeting, trustee Darrell Cotton quipped, “I would warn against any irrational exuberance.”

Cotton’s statement was not without merit. Since March 2010, gas prices have risen 27.5 percent nationally, with those prices up 4.7 percent in February 2011 due largely to ongoing instability in several key oil-producing middle eastern countries (the uprising in Egypt began in early February).

On a national level, the U.S. Labor Department reported a .5 percent increase in the Consumer Price Index, up one-tenth of one percent from the previous month.

Last week’s sales tax revenue report indicated that the retail sales in the county rose 7.13 percent from the same month last year — about $14,000 more paid in taxes. Retail sales includes gas and diesel sales.

In February, retail sales accounted for almost 53 percent of overall sales tax revenue and represents, by far, the largest majority of sales tax revenues for local government coffers. Lodging and restaurants, representing the next largest sector of the local economy, accounting for just under 15 percent of sales tax revenues, showed a 1.4 percent increase from February 2010.

Last week, the Town Tourism Committee reported that lodgers tax receipts (a separate tax charged on local hotel rooms, timeshares and short-term rentals) for February were down .62 percent compared to the same month last year.

According to TTC director Jennie Green, she is not overly concerned by the slight decline in 2011. “February 2010 was our strongest February on record.”

Utilities, also accounting for just under 15 percent of the economy (slightly trailing accommodations in industry representation for collected sales tax) showed a 5.4 percent increase from February 2010, another suggestion that gas and fuel prices could account for much of February’s sales tax increase.

Given that retail sales represent such a sizable share of the local economy, an assumption that the spike in gas prices, along with overall inflation, probably account for February’s increased sales tax revenue receipts rather than a more-robust consumer spending environment.

In fact, many local merchants have reported February numbers that are either flat or just slightly up relative to last year. Terry Smith, owner of Terry’s Ace Hardware (one of the largest retail outlets in the county) reported a slight rise in sales taxes paid in February but said that, “It wasn’t a significant increase, up just a little.”

Several downtown merchants reported sales that were down in February (compared to the previous year) with one reporting sales up for the month.

Unfortunately, there is no sure way to measure the how much the increase of sales tax is accounted for in the margin of increased gas prices. According to Mark Couch, Public Information Officer for the Colorado Department of Revenue, sales tax on gas or diesel is not broken out in reporting.

Whatever the effect of increased gas prices on local sales tax revenue collections, that situation seems to be reflected nationally, with apparent good economic news tempered by overall pessimism regarding the economy.

A Washington Post/ABC News poll released Tuesday indicated increasing discontent with the Obama administration and congress, that dissatisfaction likely driven by soaring pessimism in the economy. According to Tuesday’s Post article, 44 percent of Americans believe the economy is getting worse in spite of some indications of an improving economy and declining unemployment numbers.

Tuesday’s poll showed the highest percentage of Americans in over two years expressing pessimism regarding the economy. The poll also reported almost eight in 10 respondents stating inflation in their area had gotten worse and over seven in 10 saying that gas prices were causing financial difficulties at home.

Although February’s sales tax collections cannot be considered bad news, especially in light of the precipitous decline in collections over the past two years, Cotton’s cautionary note cannot be ignored. Although Mitchem stated that he had not considered the price of gas as a factor in February’s sales tax report, he said Tuesday that “While gas prices may provide a short-term shot in the arm (regarding sales tax collections), I think in the long run, higher gas prices will hurt our economy.”

With the summer tourist season just over a month away, it will be interesting to see if the predicted rise in the price of gas will keep visitors at home or if a number of vacationers will decide that Pagosa Country is a more affordable vacation destination than other parts of the country.

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