Higher state sales tax not a deterrent to spending, state revenue department says

Sales tax increase not deterring spending in Ariz.

PHOENIX — The first month of Arizona’s penny-per-dollar sales-tax hike did not significantly alter overall spending and indicates the increase likely did not dampen a crucial piece of the economy, state economists say.

The data, which measure taxable retail sales in the state, do indicate that Arizonans likely shopped for cars before the tax hike kicked in and then backed off in June.

Overall sales of retail goods sold in June, the latest month for which figures are available, dropped less than 1 percent from the same period a year earlier.

That includes a drop of nearly 12 percent in car sales. But a month earlier, car sales were 31 percent higher than in May 2009, a spike likely attributable to the coming tax change and dealer incentives, said Marshall Vest, an economist at the University of Arizona’s Eller College of Management.

Without the car sales numbers, the sale of retail goods climbed 0.6 percent in June.

The increase came even as the national economy weakened and the state was enduring calls for boycotts because of its tough stance on immigration.

Voters on May 18 approved the three-year increase in the state sales tax to avert sharp cuts in education and other services.

The new tax rate, from 5.6 percent to 6.6 percent, was expected to bring in about $918 million in the first year.

A legislative budget writing committee says the numbers show that in its first month, the state took in nearly $65 million in extra revenue.

The nonpartisan Joint Legislative Budget Committee said it was $7.5 million less than expected.

June’s sales-tax numbers do not reflect any discounting that merchants may have done to ensure sales.

The tax also doesn’t appear to have caused business to immediately plunge.

“I can’t see how there has been a major reduction in consumer spending because of the sales-tax increase,” Vest said.

Glenn Hamer, president of the Arizona Chamber of Commerce and Industry, said other issues, such as the economy and the fate of expiring tax cuts enacted under the Bush administration worry businesses more than the sales tax.

“For most people, the sales tax is largely in the rearview mirror,” Hamer said.

Beyond the flat retail numbers, sales for restaurants and bars climbed 0.5 percent, a sign that people may be more willing to spend, Hamer said.