It’s only been a week since the 1-cent sales tax went off the books, but area economists and businesses do not expect to see much if any increase in retail sales in the foreseeable future due in part to consumers having little idea the increase ended.
Originally passed by voters in 2010, the temporary 1-cent sales tax bumped the state’s sales tax rate from 5.6 percent to 6.6 percent. Arizonans, however, voted against approving legislation — Proposition 204 — that would have made the tax permanent in the November 2012 election, which led to the end of the 1-cent tax on June 1.
The result was a decrease in the sales tax rates in municipalities across Arizona by 1 percent, as local taxes include a combination of state, county and city tax rates. For Chandler and Gilbert, the total percentage decreased from 8.8 percent to 7.8 percent; Mesa’s dropped from 9.05 to 8.05; and Tempe’s fell from 9.3 to 8.3 percent.
Early returns from the reduction of the sales tax haven’t proven fruitful for at least two East Valley businesses. Via a spokesperson, Tempe Camera owner Joe Wojcich said the business did have some people who came in to by cameras due to the sales tax drop, but the “big weekend” Tempe Camera expected concluded without a notable jump in sales.
It was the same for San Tan Hyundai — a big-ticket item store where the 1-cent savings would have the most noticeable effect. General manager Tom Scheurn, however, said the business didn’t see an uptick in sales last weekend.
“I think people are going to be happy it’s down, but they’re not going to run in and by a car,” he said.
That’s not too surprising to Dennis Hoffman, professor of economics at the W.P. Carey School of Business at Arizona State University. Hoffman said consumers are aware the best deals for vehicles come toward the end of the month or during special events like Memorial Day weekend sales.
Tossing out holiday sales from the equation, Hoffman does not expect the end of the 1-cent tax to have a significant effect on the state economy because of how negligible that percentage is to consumers. For example, a customer in Mesa who wanted to purchase a $40,000 vehicle would have saved $400 in taxes if he or she opted to wait until June 1 in lieu of buying it on May 31.
That disparity, Hoffman said, probably isn’t sizable enough to persuade a customer from waiting a day to make a deal.
“I just don’t think people think about taxes, especially those consumption taxes, are a big deal,” he said.
He emphasized that tax rates can influence people’s shopping patterns, but it would have to take a more dramatic change to incentivize the wait. Using the car example from above, a drop from the 9.05 percent to 4.05 — a 5-percent tax decrease —would save a consumer $2,000.
Then again, it’s difficult to take advantage of a change in a sales tax if consumers don’t realize the change has occurred in the first place.
“I just don’t think people are aware of it,” Scheurn said.
Scheurn wasn’t the only one to mention that, as Tempe Camera, Hoffman and City of Chandler economic development specialist James Smith also pointed to the dearth of knowledge about the new tax rate as a reason for the lack of gains in sales.
Smith cited another factor that could have a more prominent affect on consumer habits related to the tax: the variation in rates between neighboring municipalities, as the tax rate gap between Chandler and Gilbert — the two lowest rates in the East Valley — versus Mesa and Tempe could come into play when shopping for more expensive items like cars.
“I think that makes us kind of attractive, especially with durable goods,” he said, specifically of Chandler.
Like Hoffman, Smith does not expect the sales tax decrease will have a prominent role in Chandler’s economic fortunes, and he added City staff did not factor in the decrease in its fiscal projections.
There are several other factors Hoffman and Smith said play a much larger role when it comes to consumer spending than a 1-percent shift in sales tax. Consumer confidence — a measure of how comfortable shoppers with the economic environment — is a major influence on shopping patterns, as are job security and gains or losses in income. Smith cited a recent USA Today article highlighting the effect pent-up demand — a measure of how long consumers wait to replace an item like furniture due to economic concerns — can have on spending as well. Those factors have been positive — the International Council of Shopping Centers most recent reports indicate American chain stores saw a 3.2-percent increase in May when compared to May 2012, and a report mentioned in a May Capitol Media Services article shows sales tax receipts increased by 8.2 percent in March 2013 when compared with March 2012.
“I expect retail sales will grow at the same rate,” Hoffman said.
State Treasurer Doug Ducey disagrees with the assessment by Hoffman and Smith, saying keeping the sales tax on the books permanently would, “have a detrimental long-term effect on the economy.”
Ducey was a leading opponent against Proposition 204, and he said reasons for his opposition stem from the lack of logic in raising taxes during a recession and the $2 billion in cash he said Arizona has in its operating account.
“If we need more money in any program, let’s use the cash we have instead of taking more from the taxpayers,” he said.
His advocacy against making the sales tax permanent is also rooted in part in principle, as he disagrees with the idea of making an intentionally impermanent piece of legislation permanent.
“I do think it’s important when elected leaders say something is going to be temporary remain temporary,” he said.