Texas’s Sales Taxes Plunge by Most in a Decade on Shutdown

(Bloomberg) -- The coronavirus shutdowns caused Texas's sales-tax collections to drop by the most in a decade.

The revenue is the biggest source of funds for the state government, which doesn't levy an income tax. With business closed and unemployment surging, those collections in May dropped 13.2% from a year earlier to $2.6 billion, the steepest decline since January 2010, Texas Comptroller Glenn Hegar said in a statement on Monday.

Most of May's sales-tax revenue is based on purchases in April, when much of the state had social distancing requirements in place to halt the spread of the coronavirus. The receipts are remitted to the agency in May.

“The business closures and restrictions and stay-at-home orders due to the COVID-19 pandemic spurred deep drops in collections from restaurants, amusement and recreation services, and physical retail stores,” Hegar said.

Texas is one of only a handful of U.S. states without an income tax, leaving it heavily dependent on other revenue sources. Sales taxes account for 57% of all tax collections in Texas, according to the Hegar's report.

The state's hotel occupancy tax dropped 86% to $8 million, the steepest decline since at least 1982, the data shows, as tourism ground to a halt. And as one of the largest U.S. producers of oil, the state also saw a 75% drop in oil production taxes and a 76% drop in natural gas production taxes. Taxes on alcoholic beverages fell 76% compared with last May.

Texas started lifting shutdown restrictions in early May, yet there are doubts about how quickly the economy will bounce back. Governor Greg Abbott has asked state agencies and colleges for a plan to reduce their budgets by 5% for the 2020-2021 biennium year.

Hegar said that the easing of state and local government social distancing orders should increase business activity, but operations resuming at reduced levels will continue to cause “reductions in employment, income and activity subject to sales tax for months to come.”