The City of New York Office of Management and Budget Tax Policy, Revenue Forecasting & Economic Analysis

Recent Trends in NYC’s Sales Tax

E-commerce, tourism, and general growth trends.

Presented at the FTA Revenue Estimation and Tax Research Conference. September 2017

Retail “Apocalypse” §  The Atlantic, April 2017 “What in the World Is Causing the Retail Meltdown of 2017?” §  CNN Money, April 2017 “Stores are closing at an epic pace” §  Fortune, May 2017 “Major Wall Street Firm Expects 25% of U.S. Malls to Close by 2022” * §  Time, June 2017 22 “Retailers That Are at Serious Risk of Bankruptcy” §  Bloomberg, September 2017 “Toys ‘R’ Us Collapses Into Bankruptcy Thanks to Crushing Debt

2

8640

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

UnitClosing(FullYearEs=mate)*

Source(s): Credit Suisse

Sales tax collections have slowed over the past 3 years

-10%

-5%

0%

5%

10%

15%

FY81 FY83 FY85 FY87 FY89 FY91 FY93 FY95 FY97 FY99 FY01 FY03 FY05 FY07 FY09 FY11 FY13 FY15 FY17*

NYC Sales Tax Growth (common rate and base)

Sales Tax Growth Rate FY81-FY17* Average

3

Source(s): NYC OMB

U.S. Trends

In the most recent expansionary period U.S. consumption growth has been slow.

5

-4

-2

0

2

4

6

8

101966Q1

1969Q1

1972Q1

1975Q1

1978Q1

1981Q1

1984Q1

1987Q1

1990Q1

1993Q1

1996Q1

1999Q1

2002Q1

2005Q1

2008Q1

2011Q1

2014Q1

2017Q1

Y/YPe

rcen

tChange

RealConsump=onGrowth

Source: Bureau of Economic Analysis

The slowdown in consumption is consistent with weak income growth.

6

-6

-4

-2

0

2

4

6

8

10

12

14 19

66

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Perc

ent C

hang

e Y/

Y

U.S. Personal Income (Nominal) U.S. Consumption (Nominal)

Log(U.S. Consumption) = -.43 + 1.02 Log (U.S Personal Income)

Source: Bureau of Economic Analysis, OMB Analysis

U.S. Retail Trade Sales

7

-10.0% -8.0% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

Gasoline stations [447]

Electronics and appliance stores [443]

General merchandise stores [452]

Sporting goods; hobby; book and music stores [451]

Clothing and clothing accessories stores [448]

Retail trade [44 to 45]

Food and beverage stores [445]

Miscellaneous store retailers [453]

Furniture and home furnishings stores [442]

Building material and garden supply stores [444]

Health and personal care stores [446]

Motor vehicle and parts dealers [441]

Food services and drinking places [722]

Nonstore retailers [454]

CAGR 1992-2016

CAGR 2009-2016

CAGR 2013-2016

Source: U.S. Census

Oil prices drove down the value of Retail Trade

8

$97.94

$43.21

0

20

40

60

80

100

120

1993

19

94

1995

19

96

1997

19

98

1999

20

00

2001

20

02

2003

20

04

2005

20

06

2007

20

08

2009

20

10

2011

20

12

2013

20

14

2015

20

16

WTI $ bbl

Source: EIA

2.7%

3.5%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

1993

19

94

1995

19

96

1997

19

98

1999

20

00

2001

20

02

2003

20

04

2005

20

06

2007

20

08

2009

20

10

2011

20

12

2013

20

14

2015

20

16

Retail Trade W/O Gas % Chg

Total Retail Sales Retail Sales W/O Gasoline

E-commerce is steadily gaining retail market share

9

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

Mar

-00

Mar

-01

Mar

-02

Mar

-03

Mar

-04

Mar

-05

Mar

-06

Mar

-07

Mar

-08

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Mar

-16

Mar

-17

E-Commerce Share of Total U.S Retail Sales

Source: U.S. Census Quarterly Retail E-Commerce Sales 2nd Quarter 2017, https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

New York City

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Some facts about NYC Sales Tax §  Rate – 8.875 percent.

§  NYC sales tax rate is 4.5 percent. §  NYS sales tax rate is 4.0 percent. §  MCTD Sales tax rate 0.375 percent.

§  NYC exempts clothing under $110.

§  NYS enacted its “Amazon Law” in 2008 which stated that a seller of taxable property or services is presumed to be a vendor if the seller receives a commission on completed sales for referring customers to the seller by links on a website.

§  In 2010, New York State courts upheld the 2008 legislation.

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NYC Collects Nearly $7 billion on Taxable Sales of Over $150 billion

12

46 48

23 23

44 53

26

29

$6.9

$0.0

$1.0

$2.0

$3.0

$4.0

$5.0

$6.0

$7.0

$8.0

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

99/00

00/01

01/02

02/03

03/04

04/05

05/06

06/07

07/08

08/09

09/10

10/11

11/12

12/13

13/14

14/15

15/16

16/17

NYC Retail Sales Tax ($ Billions) N

YC T

axab

le S

ales

($ B

illio

ns)

Retail Utility & Communications

Services All Other (Inc. Manu)

Sales Tax

Source(s): NYS OTPA, Taxable Sales Data State Fiscal Year (April to March). NYC Sales Tax OMB Fiscal Year (July to June)

Taxable Sales

13

-1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0%

Utility & Communications

Retail

Total

All Other (Inc. Manu)

Services

CAGR 99/00-16/17

CAGR 09/10-16/17

CAGR 13/14-16/17

Source(s): NYS OTPA, NYC OMB

NYC Taxable Sales Retail Trade

-

1

2

3

4

5

6

7

8

9

Clothing & Clothing

Accessories

Motor Vehicle & Parts

Food & Beverage

Nonstore Retailers

Miscellaneous Store Retailers

General Merchandise

Build Material & Garden Equip & Supplies

Health & Personal Care

Furniture & Home

Furnishings

Electronics & Appliance

Gasoline Stations

Sport Goods, Hobby, Music Instrument, &

Book

Billi

ons

SFY 13-14

SFY 14-15

SFY 15-16

SFY 16-17

14

Source(s): NYS OTPA, NYC OMB

NYC Taxable Sales Retail Trade

15

-10% -5% 0% 5% 10% 15% 20%

Sporting Goods, Hobby, Book and Music Stores

Electronics and Appliances

Retail Trade Total

Miscellaneous Retail

Clothing (excluding local sales)

Furniture and Home Furnishings

Health and Personal Care

Food and Beverage

Nonstore Retail

General Merchandise

Building Materials and Garden Equipment

Motor Vehicles and Parts

CAGR99/00-16/17

CAGR09/10-16/17

CAGR13/14-16/17

CAGRElectronicShopping

Source(s): NYS OTPA, NYC OMB

The recent decline in nonstore sales is attributable to direct selling establishment. Electronic shopping and mail order continues to rise.

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Direct Selling Establishments* Electronic Shopping and Mail-Order Houses

Bill

ions

NYC Nonstore Retail 4-digit

SFY13 SFY14 SFY15 SFY16

16

Source(s): NYS OTPA, NYC OMB These establishments typically go to the customers' location rather than the customer coming to them (e.g., door-to-door sales, home parties). Examples of establishments in this industry are home delivery newspaper routes; home delivery of heating oil, liquefied petroleum (LP) gas, and other fuels

NYC Taxable Sales Services

-

5

10

15

20

25

Professional, Scientific, and Technical Services

Administrative and Support and Waste Management

and Remediation Services

Arts, Entertainment, and Recreation

Accommodation Food Services and Drinking Places

Other Services (inc. Health Care and Social Assistance)

Bill

ions

SFY 13-14 SFY 14-15 SFY 15-16 SFY 16-17

17

Source(s): NYS OTPA, NYC OMB

Taxable Services

18

-4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%

Arts, Entertainment, and Recreation

Accommodation

Health Care & Other

Total

Professional, Scientific, and Technical

Administrative/Support Services

Food Services

CAGR 99/00-16/17

CAGR 09/10-16/17

CAGR 13/14-16/17

Source(s): NYS OTPA, NYC OMB

NYC Sales Tax Model

19

TotalSalesTax

LocalSpending VisitorSpending

NYCWageIncome NYCHotelTaxForecast

NYC Sales Tax (Common Rate & Base) & NYC Personal Income

20

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25 19

82

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Perc

ent c

hang

e (Y

/Y)

NYC Fiscal Year

NYC Sales Tax CRB NYC Wage Income Hotel Tax CRB

Log(NYC Sales Tax) = 3.5 + .89 Log (NYC Wage Income)

NYC Retail Trade Employment & Real Estate

21

Population growth has helped drive retail trade employment growth during the current expansion

282 272 268 267

273 281

287 295 300

292 303

314

328

340 350 352 349 351

7,700

7,800

7,900

8,000

8,100

8,200

8,300

8,400

8,500

8,600

200

220

240

260

280

300

320

340

360 20

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

f

Population in Thousands R

etai

l Tra

de E

mpl

oym

ent i

n Th

ousa

nds

Retail Trade Employment vs. Population

Retail Trade Population

Source(s): Census Bureau, U.S. BLS, NYC OMB Calendar Year

22

The recent decline in retail employment is concentrated in Manhattan

20

40

60

80

100

120

140

160

180

0

10

20

30

40

50

60

70

80

Manhattan Em

ployment in Thousands

Out

er-B

orou

gh E

mpl

oym

ent I

n Th

ousa

nds

Retail Trade Employment by Borough (4-qtr MA)

Brooklyn Bronx Queens Staten Island Manhattan (RHS)

Source(s): NYS DOL, NYC OMB

23

NYC Employment

24

-4% -2% 0% 2% 4% 6% 8% 10%

ClothingandClothingAccessories

Spor<ngGoods,Hobby,MusicalInstrument,andBookStores

Gasoline

ElectronicsandAppliance

FurnitureandHomeFurnishingStores

Total

MotorVehicleandPartsDealers

Miscellaneous

BuildingMaterial,GardenEquipment,andSupplies

FoodandBeverage

GeneralMerchandise

HealthandPersonalCare

NonstoreRetailers

CAGR99-16

CAGR09-16

CAGR13-16

Source(s): BLS, NYC OMB

Retail availability has risen throughout Manhattan

25

0%

5%

10%

15%

20%

25%

30%

35%

Availability Rate(%)

2015Q2 2017Q2

Source(s): Cushman & Wakefield, NYC OMB Note: Availability rate is the total amount of available space being marketed divided by the total inventory of space.

Conclusion §  NYC Sales Tax has decelerated in the past few years, following robust

post recession growth. §  The slowdown is largely due to moderate income growth. However, weak

visitor spending associated with a slowdown in the tourism industry has led to additional drag.

§  NYC is also seeing growth in the e-commerce sector. §  The growth in e-commerce though appears to a substitution for

traditional brick and mortar stores. §  As a result traditional retail employment in brick and mortar stores has

slowed, as has demand for retail stores in Manhattan. §  Lastly, it is possible that another potential drag on sales tax is that the

increased competition from e-commerce has driven prices down.

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