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HdL Sales Tax Report for CY2018 Q3 SalesSales Tax Update In Brief Top 25 producers In AlphAbetIcAl Order www.hdlcompanies.com | 888.861.0220 Q32018 Encinitas Encinitas’s receipts from July through September were 28.0% above the third sales period in 2017. Excluding reporting aberrations, ac- tual sales were up 4.6%.The CDTFA has resolved the bulk of outstanding payments that result- ed from the State’s software conver- sion. These multi-quarter adjust- ments temporarily spiked returns in all business groups and triggered the surge in the countywide use tax allocation pool.Once double disbursements were removed, general retail dipped 0.6%. While family apparel and shoe stores posted growth, most other sectors dipped compared to a year ago.The 3.4% rise in restaurants on an actual basis was due to a report- ing error in the fast-casual restau- rant category. Otherwise, this group lagged regional trends.Higher fuel prices contributed to the impressive jump in service sta- tions while construction and auto-re- lated sectors reflected positive eco- nomic activity on an adjusted basis.Net of aberrations, taxable sales for all of San Diego County grew 3.7% over the comparable time pe- riod; the Southern California region was up 4.3%. City of Encinitas Fourth Quarter Receipts for Third Quarter Sales (July - September 2018) Published by HdL Companies in Winter 2019 7 Eleven 76 Best Buy BMW of Encinitas Cardiff Seaside Market Chevron Encinitas Ford Encinitas Gasoline & Auto Service Financial Services Vehicle Trust Hansen Surfboards Herman Cook Volkswagen Home Depot Home Goods Pacific Coast Grill Quick Shine Car Wash RCP Block & Brick REI Ross Shell Shell Car Wash At Encinitas Ranch Target Trader Joes Valero Vons Walmart Supercenter $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 SALES TAX BY MAJOR BUSINESS GROUP 3rd Quarter 2017 3rd Quarter 2018 General Consumer Goods Restaurants and Hotels Fuel and Service Stations County and State Pools Autos and Transportation Building and Construction Food and Drugs Business and Industry $4,330,607 $3,382,095 1,956 2,325 565,688 436,318 $3,762,963 $2,943,453 2018-192017-18 Point-of-Sale County Pool State Pool Gross Receipts REVENUE COMPARISON One Quarter – Fiscal Year To Date (Q3) NOTESSales Tax UpdateQ3 2018 City of Encinitas $0 $2,000 $4,000 $6,000 $8,000 SALES PER CAPITA Encinitas Q3 15 Q3 18 Q3 16 Q3 17 County California 25% Cons.Goods 17% Restaurants 13% Fuel 13% Pools 11% Autos/Trans. 9% Building 7%5% Food/DrugBus./Ind. Encinitas This QuarterREVENUE BY BUSINESS GROUP Q3 '18* Encinitas ENCINITAS TOP 15 BUSINESS TYPES Business Type Change Change Change County HdL State*In thousands of dollars 3.6%43.4%31.8% 67.9 Auto Lease — CONFIDENTIAL — 43.3%29.8%29.6% 294.6 Building Materials — CONFIDENTIAL — 14.0%14.9%11.8% 344.5 Casual Dining 12.3%20.3%22.5% 76.1 Convenience Stores/Liquor 28.3%18.3%17.1% 279.8 Discount Dept Stores — CONFIDENTIAL — 17.8%12.7%18.3% 109.6 Electronics/Appliance Stores 37.5%36.3%34.3% 109.3 Family Apparel 54.9%15.2%14.4% 142.5 Fast-Casual Restaurants 27.5%16.1%9.6% 198.8 Grocery Stores 12.2%23.1%17.8% 139.7 Home Furnishings 5.5%12.7%3.9% 275.1 New Motor Vehicle Dealers — CONFIDENTIAL — 20.7%13.5%17.2% 201.4 Quick-Service Restaurants 78.8%43.1%50.1% 571.9 Service Stations 2.4%8.5%1.6% 68.8 Specialty Stores 33.9%21.1%17.6% 201.7 Sporting Goods/Bike Stores 21.8%21.1%27.8% 29.4% 28.0% 3,763.0 567.6 4,330.6 Total All Accounts County & State Pool Allocation Gross Receipts 22.6%27.8% 21.3%22.6% California Overall The CDTFA’s problems with its new software system had yet to be fully re- solved by the end of the third quarter. HdL’s adjustments for delayed payments and other reporting deficiencies indicate that statewide receipts from the local one cent tax rose 5.2% over the first three quarters of 2018 versus the comparison period. The gains were primarily from higher fuel prices, strong building-con- struction activity and a rise in tax re- ceipts from online purchases delivered from out-of-state that are shared by all agencies via the county pools. The data exhibits the start of a leveling pattern in other sectors. The statewide gain in new car sales for July through September was due to a single manufac- turer filling back orders. Price compe- tition kept tax revenues from consumer goods receipts relatively flat while the rise in online shopping is expanding the diversion of tax revenues from brick and mortar stores to county pools or to in- state distribution centers. Restaurant sales are beginning to show signs of market saturation as well as the impact of new competition that includes - prepared food and meal kits delivered from a variety of other sources. A mod- est gain in business-industrial sales was largely related to data and warehouse technology as well as a few major de- velopment projects. Anticipated declines in fuel prices in the first quarter of 2019 adds support to HdL’s latest consensus forecast for a modest statewide gain of 1.5% in fiscal year 2019-20 unless new trade conflicts further impact the economy. South Dakota V. Wayfair Decision In June, the Supreme Court reversed its previous ruling that retailers are not required to collect taxes for jurisdictions where they have no physical presence or “nexus.” Instead, the buyer was respon- sible for remitting the tax. California will begin enforcing the Wayfair reversal effective April 1, 2019 by making retailers delivering from out-of-state responsible for collecting and remitting use tax if calendar year sales exceed $100,000 and/or 200 or more separate transactions. The same threshold will also determine whether in-state retailers are responsible for col- lecting taxes on deliveries to individual transactions tax districts. Some legislators have announced their intention to hold hearings and may modify the regulations prior to the an- nounced April 1 implementation date. That process and anticipated start-up and notification issues will probably delay full compliance in 2019-20. As most major online retailers, including Wayfair, are already collecting Califor- nia taxes and the state has traditionally enforced a broad definition of “nexus,” the impact of the South Dakota decision may be less than in other states. The U.S. Government Accountability Office estimates a potential eventual gain of $3 to $5 per capita in receipts from our one cent local tax.