Dallas, North Texas cities grapple with sales tax decline amid inflationary economy

Dallas, Texas – In a climate of heightened inflation and escalating goods prices, North Texas cities are witnessing an unsettling decline in sales tax revenues, following significant surges in the preceding months.

As cities across the region labor to finalize their budgets for the forthcoming fiscal year, they confront the precarious task of balancing projected sales and property tax revenues. Despite the tenuous economic landscape, numerous North Texas municipalities are opting to expand their budgets, even as they simultaneously propose reductions in property tax rates.

Dallas is seeing drop in sales tax revenue since early 2023

In Dallas, sales tax revenue saw an impressive rise of $15.5 million from October 2022 through February 2023. However, the following months brought about a shift in this trajectory. In the three subsequent months, collections were lackluster compared to the same period the prior year, according to an internal city memorandum. Notably, sales tax collections in June were down nearly 1.5% compared to the same month last year, as indicated by the most recent figures from the Texas Comptroller’s Office.

Frisco, Irving, Arlington, McKinney also see sales tax revenue decline in recent months

The decline was not isolated to Dallas, with neighboring cities also facing setbacks. In Frisco, for instance, year-over-year sales tax collections plummeted by almost 8% in June. Irving recorded a 2% drop, while Arlington’s decline was one of the most pronounced, with sales tax collections slumping by more than 20%. In contrast, McKinney experienced a nearly 5% surge in sales tax revenues in June.

Nevertheless, despite these setbacks, sales tax collections from January to June remain on the rise year over year in most North Texas cities. For instance, Fort Worth’s sales tax collections for 2023 are up by 8.6% compared to the same period last year. Arlington stands as an exception, with a decline of nearly 3.5% year over year.

The ongoing fluctuations in sales tax collections come amidst a backdrop of sustained inflation. While inflationary pressures have eased since last July, prices remain elevated. The Consumer Price Index (CPI) for Dallas-Fort Worth rose by 4% in the 12 months through July, representing a deceleration from the peak increase of 9.3% recorded in the previous July. However, the local price gains in the region still outpace the national CPI increase of 3.2% over the same period.

Sales tax decline expected to continue in coming months according to experts

In light of these economic headwinds, Dallas’ contract economist, Dearmon Analytics, forecasts that sales tax collections are likely to continue their deceleration over the coming months. Consequently, cities in the North Texas region may face mounting budgetary challenges as they endeavor to navigate this volatile economic climate.