Local sales tax collections are way up in 2022, but how much of that is due to surging inflation?

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Normally, if the money coming into my bank account surges by 17%, I would be getting into party planning mode. But today, I guess I’m a glass-half-empty type of guy. In my defense, who can afford to fully fill anything these days? (I quickly learned it wasn’t a good idea when the gas pump asked for my shopper card and my completed loan application.)

That’s kind of the situation the City of Lawrence and other governments find themselves in as their bank accounts are growing rapidly thanks to surging sales tax collections.

The City of Lawrence has now received two of its 12 sales tax checks from the state of Kansas for 2022. The totals show sales tax collections in Lawrence are up a historically robust 17%, compared with the same two months a year ago.

But there is a big question that comes with that big number: How much of the increase is due to rapidly rising inflation?

I follow sales tax collections every year, but this year will be trickier than most because of inflation. With inflation at or exceeding levels last seen in the 1970s and ’80s, you have to expect some wild fluctuations in sales tax collections this year. That’s because as the prices of goods increase, the amount of sales taxes collected also will increase, even if you are buying the same amount of goods.

I’m sure you already have this figured out, but just in case you are still in shock from that $20 hamburger, here’s what I’m talking about: In 2021 you buy a loaf of bread for $2 and pay a 10% sales tax of 20 cents. In 2022, you buy a loaf of bread for $3 and pay a 10% sales tax of 30 cents. You still have bought the same amount of bread, but the local governments have collected quite a bit more in sales tax.

Normally, we follow sales tax collections because they are a peek at how much the local economy — at least the retail economy — is growing or struggling at any given time. This year, we’ll all need a beverage stronger than tea to read those tea leaves.

As for these most recent numbers, they likely show both inflation and actual growth in retail sales in the community. The two checks the city has received are for the January and February reporting periods. But due to normal delays in the state’s reporting process, the numbers mainly represent sales that were made in November and December.

That, of course, is the prime time of holiday shopping season. Did you get 17% more presents in your stocking this season? Good for you, if you did. (I did not. My wife gets me an eyebrow trimmer for Christmas, and 17% larger would make it a chainsaw.) But I suspect many families did spend a bit more money on the holidays, perhaps using some of the government stimulus payments that arrived earlier in the year or money from generally increasing wages.

I’m betting that the latest numbers represent a real increase in consumer spending in Lawrence because, while inflation was definitely present in November and December, there is no reason to believe it was occurring at a 17% rate. In numbers released earlier this month, the federal government estimates overall inflation has been about 7% over the last 12 months. Some items have seen inflation at a much higher rate, with energy inflation estimated at 27%. A lot of that increase is related to gasoline, and as a reminder, you don’t pay a sales tax on gasoline. You pay a special fuel tax, and those tax collections don’t show up in this report. However, you do pay a sales tax on your electric bill and other such utilities.

If the government’s inflation estimate is accurate in Lawrence, it is possible that the city experienced about a 10% increase in consumer spending during the period. That would be a strong showing. So, if you want to party a little, go ahead.

Lawrence’s 17% increase was slightly higher than what the state as a whole experienced. Local sales tax collections statewide are up 15.9%, compared with the same period a year ago. Lawrence’s increase ranked in the middle of the pack when compared with other major retail centers in the state. Here’s a look at the year-to-date increases for the other big retail centers:

• Olathe: up 24.1%

• Overland Park: up 21.3%

• Lenexa: up 19.9%

• Sedgwick County: up 17.3%

• Lawrence: up 17.3%

• Shawnee: up 13.6%

• Kansas City: up 12.9%

• Topeka: up 12.7%

• Manhattan: up 12.5%

• Salina: up 11.4%

While 17% is nothing to sneer at, there is another number Lawrence posted that is even more remarkable. Lawrence, thus far in 2022, has posted a 51% increase in its use tax collections. A use tax is a special sales tax that is charged on online purchases made with companies outside of Lawrence. Online sales through Amazon and other such companies are prime use tax generators, but there are also some other categories.

I’ve been writing about rising use tax collections in Lawrence for a couple of years now. I had thought 2022 might be the year when those increases subside or even reverse, as traditional retailers more fully open during the pandemic. But, if the first two months are any indication, Lawrence consumers are doubling down on internet shopping. For all of 2021, Lawrence posted a nearly 28% increase in use tax collections. The fact that those collections grew nearly 30% last year makes a potential 50% increase all the more impressive.

Or, maybe, scary is the better word. At some point, you have to think such online shopping activity will result in negative consequences for the local retail scene. As I’ve noted before, $1 in use tax is not equal to $1 in local sales tax. While they show up in the city’s bank account as equals, the shopping that produced the $1 in local sales taxes generally will support more local jobs than the shopping that produced the $1 in online use taxes.

All in all, there will be a lot to keep an eye on in 2022, including whether the City of Lawrence can control its expenses at a rate less than inflation. If so, these large increases in sales tax collections could be a very good thing. It could give the city room to lower its property tax rate during budget sessions this summer. That would be one local way to partially combat inflation.