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HdL Sales Tax Report for CY2019 Q4 SalesSales Tax Update In Brief Top 25 producers In AlphAbetIcAl Order www.hdlcompanies.com | 888.861.0220 Q42019 Encinitas Encinitas’ receipts from Octo- ber through December were 5.4% above the fourth sales period in 2018. Excluding reporting aberra- tions, actual sales were up 2.1%.The primary factor in this improve- ment was a 42% surge in alloca- tions from the countywide use tax pool, which has been boosted by a recent legislative change that allows the State to collect tax revenue from small, third-party sellers on inter- net-based, market-platforms.The City also received a large busi- ness-industrial tax payment for the sale of equipment delivered to a lo- cal company from outside of Califor- nia. A chic new restaurant opening was also positive.Service station receipts were down, but the decline was magnified by aberrations associated with pay- ment timing. Home furnishing sales were lower.Net of aberrations, taxable sales for all of San Diego County grew 5.6% over the comparable time pe- riod; the Southern California region was up 4.4%. City of Encinitas First Quarter Receipts for Fourth Quarter Sales (October - December 2019) Published by HdL Companies in Spring 2020 7 Eleven 76 Best Buy BMW of Encinitas Chevron Dick’s Sporting Goods Encinitas Ford Financial Services Vehicle Trust Hansen Surfboards Herman Cook Volkswagen Home Depot Home Goods Pacific Coast Grill REI Ross Shell Shell Car Wash At Encinitas Ranch Target TJ Maxx Trader Joes Valero Valero Vons Vuori Walmart Supercenter $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 SALES TAX BY MAJOR BUSINESS GROUP 4th Quarter 2018* 4th Quarter 2019* General Consumer Goods County and State Pools Restaurants and Hotels Autos and Transportation Fuel and Service Stations Food and Drugs Building and Construction Business and Industry *Allocation aberrations have been adjusted to reflect sales activity $7,430,675 $7,950,765 2,828 3,493 1,212,155 1,044,275 $6,215,692 $6,902,996 2019-202018-19 Point-of-Sale County Pool State Pool Gross Receipts REVENUE COMPARISON Two Quarters – Fiscal Year To Date (Q3 to Q4) NOTESSales Tax UpdateQ4 2019 City of Encinitas $0 $1,000 $2,000 $3,000 $4,000 SALES PER CAPITA * Encinitas Q4 16 Q4 19 Q4 17 Q4 18 County California *Allocation aberrations have been adjusted to reflect sales activity 27% Cons.Goods 18% Pools 17% Restaurants 12% Autos/Trans. 9% Fuel 8% Food/Drug6% Building4% Bus./Ind. Encinitas This Quarter*REVENUE BY BUSINESS GROUP *Allocation aberrations have been adjusted to reflect sales activity Q4 '19* Encinitas ENCINITAS TOP 15 BUSINESS TYPES** Business Type Change Change Change County HdL State*In thousands of dollars -2.3%3.2%1.1% 74.5 Auto Lease -1.8%1.4%2.8% 183.5 Building Materials — CONFIDENTIAL — 9.0%3.8%4.0% 313.8 Casual Dining -7.4%-0.3%1.2% 76.5 Convenience Stores/Liquor -2.0%3.6%4.1% 237.1 Discount Dept Stores — CONFIDENTIAL — -9.6%-6.6%-6.9% 106.5 Electronics/Appliance Stores -4.4%1.3%2.5% 100.5 Family Apparel 1.4%4.3%2.4% 101.1 Fast-Casual Restaurants 0.1%1.3%3.4% 170.6 Grocery Stores -22.4%-2.1%2.7% 101.1 Home Furnishings 1.0%-3.4%-2.1% 283.4 New Motor Vehicle Dealers — CONFIDENTIAL — -2.3%1.9%2.5% 156.9 Quick-Service Restaurants -7.3%0.2%-2.0% 322.2 Service Stations -9.6%-3.8%-5.0% 74.7 Specialty Stores -0.3%-3.0%-6.7% 139.6 Sporting Goods/Bike Stores 0.2%0.4%-2.9% 33.4% 2.1% 3,055.5 677.1 3,732.6 Total All Accounts County & State Pool Allocation Gross Receipts 37.7%26.7% 5.6%4.2% ** Accounting aberrations such as late payments, fund transfers, and audit adjustments have been adjusted to reflect the quarter in which the sales occurred. California Overall Statewide sales and use tax receipts from 2019’s fourth quarter were 4.2% higher than last year’s holiday quarter after fac- toring for accounting anomalies. The increase came from the accelera- tion in online shopping which generated huge gains in the countywide use tax pools for merchandise shipped from out-of-state and from California based fulfillment warehouses in those cases where the warehouse is also point-of- sale. This segment was further boosted by the first full quarter of California’s implementation of the Wayfair vs South Dakota ruling that requires out-of-state retailers to collect and remit sales tax on merchandise sold to California custom- ers. The ruling has led to an increase in sales tax receipts of roughly $2.95 per capita while also producing double digit gains for in-state online fulfillment centers. In contrast, soft sales and closeouts resulted in a decline in almost every category of brick-and-mortar spend- ing during the holiday season while new cannabis retailers helped boost what would have been a soft quarter for the food-drug group. Most oth- er sales categories including new cars and business-industrial purchases were also down. Restaurant group gains were modest compared to previous quarters. Overall, the rise in county pool receipts offset what would have been otherwise, a flat or depressed quarter for most ju- risdictions. Covid-19 The coronavirus impact will first be seen in next quarter’s data reflecting January through March sales. Based on recovery rates being reported in some Asian countries, the virus’s disruption of supply chains will be deepest in the first and second quarter and largely resolved by mid-summer. However, recovery from social distancing and home confinements could take longer with the deepest tax declines expected in the restaurant/hospitality, travel/trans- portation and brick-and-mortar retail segments. Layoffs and furloughs are also expected to reduce purchases of new cars and other high cost durable goods. The losses from the state’s high-tech inno- vation industries may be more modest while the food-drug and online retail groups could exhibit increases. Assuming that the virus is largest con- tained by the end of September, HdL’s economic scenario projects that tax de- clines will bottom out in the first quarter of 2021 but with only moderate gains for several quarters after. Data from previous downturns suggests that the return to previous spending is not im- mediate and often evolves. Businesses emerge with ways to operate with fewer employees and more moderate capital investment. Consumers take time to ful- ly get back to previous levels of leisure travel, dining and spending and may permanently transfer to newly discov- ered services, activities and/or online retail options.