Have you ever wondered how much of your sales tax base is from non-residents? Well, in my new article my co-author and I explore just that question. We examine the average contribution to the sales tax base (not revenues) from a single in-commuter, a one-night stay of a tourist, and a college student. We do not find much evidence that college students meaningfully contribute to the sales tax base, but we find that an in-commuter has an average monthly contribution to the sales tax base of just over $1,000. Similarly, a hotel night stay, our proxy for tourism, is $525. Does this mean that every in-commuter or tourist is contributing that much or that little? Nope, that is just the average. So, look at how many commuters you have, how many tourists and think about if you think they spend about the same as the average or a bit more or a bit less. This will allow you to have a decent estimate of how much of your sales tax base is paid by these two major sources of non-resident sales tax revenues! (See the full article here.)
Following summary by Sophia Trentacosta
In North Carolina, urbanism greatly impacts counties’ revenue raising capacities through sales taxes. While previous studies on sales tax exportation focus on the presence or absence of regional retail centers and highways, this blog addresses the impact of a variety of non-resident populations in North Carolina. Afonso and Moulton’s (2024) article, published in the journal of Public Budgeting & Finance, uses the onset of the COVID-19 pandemic as a natural experiment in order to understand the impacts of commuters, tourists, and college students on a county’s tax base.
Understanding this tax base composition can pose substantial benefits for budget practitioners. For instance, according to a study from the Urban Affairs Review, exporting tax burdens impacts residents’ levels of support for local governments (Martin, Lopez, and Olsen 2019). Since a voter referendum is required to levy local sales taxes, it is important for practitioners to consider who bears tax burdens. Additionally, studies have shown that having diverse revenue sources can lead to greater levels of stability among local governments. Understanding the economic impacts of commuters, tourists, and college students on sales tax bases can thus guide practitioners as they make decisions related to financial management.
Before diving into the study’s methods and findings, it is important to understand the state of sales taxes in North Carolina. There are 100 counties within the state, all of which levy at between a 2% and 2.75% local rate. The similarity in sales tax rates across counties thus makes North Carolina a particularly strong setting for this analysis. Furthermore, there are no municipal or special district local sales taxes, and counties’ sales tax base is set by the state government through the General Assembly. This lack of variation in sales tax rates creates a relatively stable fiscal environment ideal for a research analysis. Finally, the large presence of tourism, commuting, colleges and universities, and urbanism makes North Carolina an ideal setting to study the specific impacts of non-residents on counties’ sales tax base.
This study uses the economic shock of the COVID-19 pandemic in order to study the impact of non-residents. The pandemic reached North Carolina in March 2020, and a statewide stay-at-home order was passed. As a result, many commuters began teleworking, tourism came to a halt, and college students were sent home. Since this stay-at-home order applied to all counties and populations throughout North Carolina, the onset of the pandemic served as the comparison point for this study. With the pandemic-induced absence of commuters, tourists, and college students, sales tax revenues from March and April of 2020 were compared to forecasted sales. This comparison allowed for the impact of non-residents on counties’ sales tax revenues to be isolated.
This natural experiment revealed that the loss of in-commuters and tourists throughout North Carolina’s 100 contributed to significant declines in taxable sales. More specifically, the loss of one in-commuter resulted in a reduction in taxable sales by $1,079. Conversely, gaining one out-commuter resulted in an increase of $542. To measure the impact of tourists, one hotel room vacancy was used as a proxy for the taxable sales of a single visitor. A hotel room vacancy at the beginning of the pandemic resulted in a $525 decrease in taxable sales. The impact of college students, however, is less clear. Unlike commuters and tourists, college students were not found to be significant contributors to sales tax bases outside of their county of residence. This could be due to: the presence of on-campus meal plans, students continuing to live in-county after moving off-campus, and/or the possibility that college students may not be an important component of the sales tax base.
These results allow practitioners and researchers to understand both the tax mix and rate setting of different jurisdictions. The determination of specific monetary contributions also helps practitioners and researchers determine the extent to which residents bear the tax burden which can impact levels of support for local governments. Furthermore, exporting this tax burden to commuters, tourists, and college students also lowers the cost of government and increases the demand for government services. Future research could focus on the impact of these tax exportations on the expenditures of local governments.
Citation to journal article:
Afonso, Whitney B., and Jeremy G. Moulton. “Local sales tax exportation: The impact of commuters, tourists, and college students on the tax base.” Public Budgeting & Finance (2024).
Other articles mentioned:
Martin, Isaac William, Jane Lilly Lopez, and Lauren Olsen. 2019. “Policy Design and the Politics of City Revenue: Evidence from California Municipal Ballot Measures.” Urban Affairs Review 55, no. 5: 1312–38.