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HdL Sales Tax Report for CY2018 Q4 SalesSales Tax Update In Brief Top 25 producers In AlphAbetIcAl Order www.hdlcompanies.com | 888.861.0220 Q42018 Encinitas Encinitas’s receipts from Octo- ber through December were 0.5% above the fourth sales period in 2017. However, retroactive pay- ments from a gas station vendor exaggerated the results. Excluding reporting aberrations, actual sales were down 1.4%.W eak holiday shopping results and the closeout of a merchant pulled the City’s largest category, general consumer goods, lower than last year. Restaurant returns were also negatively impacted by closures and a softening in the fine dining sector.After experiencing solid receipts in the previous quarter, the au- to-transportation group struggled to match the gains from a year ago as overall demand appears to be flattening.In contrast, steady price increases at the pump, mostly related to the global cost of crude oil and imple- mentation of SB-1 locally, pushed gas station receipts higher. While increased capital and online pur- chases of items shipped into the region lifted allocations from the countywide use tax pool.Net of aberrations, taxable sales for all of San Diego County were flat over the comparable time period; the Southern California region was up 2.6%. City of Encinitas First Quarter Receipts for Fourth Quarter Sales (October - December 2018) Published by HdL Companies in Spring 2019 7 Eleven 76 Best Buy BevMo BMW of Encinitas Cab West/Volvo Leasing Chevron Dick’s Sporting Goods Encinitas Ford Financial Services Vehicle Trust Hansen Surfboards Herman Cook Volkswagen Home Depot Home Goods Pacific Coast Grill Quick Shine Car Wash REI Ross Shell Car Wash At Encinitas Ranch Target TJ Maxx USA Gasoline 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 4th Quarter 2017 4th Quarter 2018 General Consumer Goods Restaurants and Hotels County and State Pools Autos and Transportation Fuel and Service Stations Food and Drugs Building and Construction Business and Industry $7,950,765 $6,983,392 3,493 3,236 1,044,275 906,605 $6,902,996 $6,073,551 2018-192017-18 Point-of-Sale County Pool State Pool Gross Receipts REVENUE COMPARISON Two Quarters – Fiscal Year To Date (Q3 to Q4) NOTESSales Tax UpdateQ4 2018 City of Encinitas $0 $2,000 $4,000 $6,000 $8,000 SALES PER CAPITA Encinitas Q4 15 Q4 18 Q4 16 Q4 17 County California 28% Cons.Goods 16% Restaurants 13% Pools 13% Autos/Trans. 11% Fuel 7% Food/DrugBuilding 7% Bus./Ind 4%. Encinitas This QuarterREVENUE BY BUSINESS GROUP Q4 '18* Encinitas ENCINITAS TOP 15 BUSINESS TYPES Business Type Change Change Change County HdL State*In thousands of dollars 11.1%-11.4%-4.2% 97.0 Auto Lease — CONFIDENTIAL — -2.9%5.5%4.5% 186.8 Building Materials — CONFIDENTIAL — 5.5%2.5%5.0% 304.0 Casual Dining 2.3%2.8%10.3% 75.8 Convenience Stores/Liquor -6.6%3.9%4.9% 242.1 Discount Dept Stores — CONFIDENTIAL — -24.3%-1.6%-5.2% 92.4 Electronics/Appliance Stores 13.7%0.5%1.7% 108.8 Family Apparel -25.2%4.4%4.0% 72.5 Fast-Casual Restaurants -17.5%-11.7%-15.6% 146.8 Grocery Stores -0.5%0.8%0.4% 129.7 Home Furnishings -4.4%5.8%3.0% 279.8 New Motor Vehicle Dealers — CONFIDENTIAL — 0.6%6.6%6.8% 165.6 Quick-Service Restaurants 31.4%28.4%16.7% 397.8 Service Stations 18.4%-10.7%-5.2% 85.3 Specialty Stores -10.3%-2.3%-2.0% 141.4 Sporting Goods/Bike Stores 7.0%2.8%0.3% 1.9% 0.5% 3,140.0 480.1 3,620.2 Total All Accounts County & State Pool Allocation Gross Receipts 4.4%8.6% 3.0%7.2% Statewide Results The local one cent share of sales and use tax from October through Decem- ber sales was 2.8% higher than 2017’s holiday quarter after factoring for state reporting aberrations. The overall increase came primarily from a solid quarter for contractor materials and equipment, expanded production by an auto manufacturer and rising fuel prices. Online fulfillment centers, new technology investment and cannabis start-ups also produced significant gains. Receipts in the six county Sacramento region grew 7.9% over last year while the remainder of the state was generally flat or exhibited only minor growth. Notable was the 0.09% rise in tax re- ceipts from brick and mortar retailers which is the lowest holiday gain for that sector since 2009. A 9.6% increase in receipts from online shopping which is allocated to central order desks or coun- ty pools was part of the reason. Other factors include lower prices, gift cards which move purchases to future quar- ters and greater gifting of non-taxable experiences and services. The Retail Evolution Continues A recent survey identified U.S. closures of 102 million sq. ft. of retail space in 2017 and an additional 155 million sq. ft. in 2018. Similar losses are expect- ed in 2019 with 5,300 closures already announced. Payless Shoes, Gymboree, Performance Bicycle and Charlotte Russe are going out of business while chains including Sears, Kmart, Macy’s, JCPenney, Kohl’s, Nordstrom, Dollar Tree, Victoria’s Secret, Chico’s, Foot Locker and Lowe’s have announced plans for further cuts in oversaturated markets and downsizing of stores. Retailers are not planning the end of physical stores which continue to be important for personalized experiences and shopping entertainment. However, the shifting trends encourage reduced square footage with less overhead to bet- ter compete on prices and provide more intimate shopping encounters. With smartphones allowing purchase and delivery of almost anything at any time of the day without leaving home, big box retailers are responding by downsizing stores and subleasing excess space to compatible businesses to help draw traffic. Locations where people congregate for entertainment, food and services have become part of the evolving strategy as has integrating retail with more convenient spots for pick-up and delivery of online orders. Barry Foster of HdL’s EconSolutions, notes that “shifting shopping habits pres- ent challenges but also opportunities.” “Smaller footprints enable expanding into smaller niche markets while mixed use projects and 18-hour environments are chances to rebuild downtowns and reinvigorate shopping centers.” With more companies using the inter- net to sell directly to customers from their warehouses, the trend also provides jurisdictions whose populations aren’t adequate in size to support large scale retail to focus on industrial development for sales tax as well as jobs.