Rural County Sales Tax Revenue Hit Hard in August 2020

by Wayne Miller - November 9, 2020

In a reversal of recent trends, Arkansas county government sales tax revenue went down in August 2020. This decline was more severe for rural counties, and occurred as the boost from temporary federal financial assistance such as the CARES Act diminished.

Until recently, county government sales tax revenue in Arkansas grew almost every month in 2020, despite the COVID-19 pandemic’s impact on employment and some businesses. If August sales tax revenue is an indicator of the beginning of a decline in revenue, then without additional federal funding and until we get the COVID-19 pandemic under control, rural county governments that rely heavily on sales tax revenue to pay for the infrastructure and services they provide to residents and businesses will either need to find alternative sources of revenue or cut back on the services provided.

Sales Tax Declines - County Versus Urban Areas

August 2020 was the first month in 2020 where revenue from county government sales taxes declined statewide from the previous month, except for a slight decline from March to April.

County sales tax revenue fell 2.2 percent statewide between July and August 2020. Rural counties[1] were disproportionally affected by the decline in sales tax revenue (Figure 1).

County sales tax revenue fell 3.5 percent in the rural counties between July and August 2020 compared to a decline of only 1.2 percent in the urban counties. Counties in the Delta and Highlands regions of the state were especially hit hard by decline in county sales tax revenue, falling slightly over 4 percent in each region.

County sales tax revenue grew slowly from April to July in part due to funding in the CARES Act, which provided enhanced unemployment benefits, funding for individuals, businesses, state and local governments, and other funding to keep the economy from declining sharply. However, some of this funding has expired and we are beginning to see the effect on income and spending, which affects local government revenue.

More than two-thirds (51) of Arkansas’ 74 counties with a sales tax saw their revenue from the county sales tax decline from July to August 2020 (Figure 2). Forty-four of the 51 counties experiencing declines in their sales tax revenue were rural. While the declines in sales tax revenue for some counties were small, 24 counties experienced declines between 5 percent and 14 percent from July to August.

While August statewide county sales tax revenue was still above March 2020 levels, 12 rural counties had less sales tax revenue in August than March. Also, 17 rural counties generated less revenue from their county sales tax in August 2020 compared to August 2019.

Because rural counties tend to rely more heavily on sales tax revenue, these counties are likely to face difficult budget decisions unless additional federal funding is available in the short-term.

The Community, Professional, and Economic Development unit at the University of Arkansas System Division of Agriculture will continue to monitor county government revenue and provide updates as the effects of the COVID-19 Pandemic and any additional federal assistance become more clear.

[1] For a definition of rural and urban counties and a listing of counties in each region, please see our 2019 Rural Profile of Arkansas at: https://uaex.uada.edu/ruralprofile