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HdL Sales Tax Report for CY2018 Q1 SalesSales Tax Update In Brief Top 25 producers In AlphAbetIcAl Order www.hdlcompanies.com | 888.861.0220 Q12018 Encinitas Encinitas’ receipts from January through March were 1.9% below the first sales period in 2017. How- ever, due to CDTFA’s transition to a new reporting system, multiple re- turns were not processed in the cur- rent period but are anticipated to be received with the next quarterly al- locations. Including these expect- ed remittances and other reporting aberrations, actual sales were up 4.9%.Once adjusted, the City experi- enced a strong sales quarter by multiple general consumer cate- gories including family apparel, home furnishing and sporting goods stores. Steady price increases at the pump, mostly due to the global cost of crude oil and the implemen- tation of SB-1 locally, pushed ser- vice stations higher.Favorable winter weather and the current stable housing market helped produce solid gains from building-construction suppliers.This growth in local point of sale revenue and increased capital and online purchases of items shipped into the region boosted allocations from the countywide use tax pool, further contributing to the positive adjusted outcome.Net of aberrations, taxable sales for all of San Diego County grew 4.7% over the comparable time pe- riod; the Southern California region was up 5.6%. City of Encinitas Second Quarter Receipts for First Quarter Sales (January - March 2018) Published by HdL Companies in Summer 2018 7 Eleven Best Buy BMW of Encinitas Cardiff Seaside Market Chevron Dick’s Sporting Goods Encinitas Ford Encinitas Gasoline & Auto Service Hansen Surfboards Herman Cook Volkswagen Home Depot Home Goods Lazy Acres Pacific Coast Grill Quick Shine Car Wash REI Ross Shell Gas & Car Wash Target TJ Maxx USA Gasoline Valero Verizon Wireless Vons Walmart Supercenter $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 SALES TAX BY MAJOR BUSINESS GROUP 1st Quarter 2017 1st Quarter 2018 General Consumer Goods Restaurants and Hotels County and State Pools Autos and Transportation Fuel and Service Stations Building and Construction Food and Drugs Business and Industry $13,239,343 $12,913,450 3,963 8,807 1,702,394 1,752,238 $11,532,986 $11,152,405 2017-182016-17 Point-of-Sale County Pool State Pool Gross Receipts REVENUE COMPARISON Four Quarters – Fiscal Year To Date NOTESSales Tax UpdateQ1 2018 City of Encinitas $0 $1,000 $2,000 $3,000 $4,000 SALES PER CAPITA Encinitas Q1 15 Q1 18 Q1 16 Q1 17 County California 27% Cons.Goods 18% Restaurants 14% Pools 11% Autos/Trans. 10% Fuel 8% Building 7%4% Food/DrugBus./Ind. Encinitas This QuarterREVENUE BY BUSINESS GROUP Q1 '18* Encinitas ENCINITAS TOP 15 BUSINESS TYPES Business Type Change Change Change County HdL State*In thousands of dollars -4.9%-7.6%-7.1% 42.6 Auto Repair Shops 4.5%3.8%3.2% 190.8 Building Materials — CONFIDENTIAL — -0.7%-2.0%-3.7% 262.7 Casual Dining 2.1%0.5%7.7% 53.8 Convenience Stores/Liquor 9.5%2.8%3.3% 202.8 Discount Dept Stores — CONFIDENTIAL — 3.0%0.8%-1.7% 91.5 Electronics/Appliance Stores 8.1%8.2%13.3% 77.7 Family Apparel 49.3%6.8%5.8% 93.3 Fast-Casual Restaurants -11.6%1.9%3.4% 116.3 Grocery Stores 13.8%-1.0%2.2% 119.2 Home Furnishings -6.0%-0.2%-4.7% 247.6 New Motor Vehicle Dealers — CONFIDENTIAL — -5.9%-3.8%-5.0% 148.9 Quick-Service Restaurants 7.4%4.6%-0.6% 304.8 Service Stations -17.2%-10.0%-12.8% 50.3 Specialty Stores 3.9%1.4%3.9% 104.5 Sporting Goods/Bike Stores -1.8%-3.4%-1.8% -2.7% -1.9% 2,559.0 399.4 2,958.3 Total All Accounts County & State Pool Allocation Gross Receipts -4.4%-2.1% -3.6%-1.8% CDTFA Changes The California Department of Taxes and Fees Administration (CDTFA) implemented new reporting software – Centralized Revenue Opportunity System (CROS) with the first quarter 2018 tax filings. The change will al- low CDTFA to collect and allocate tax revenue more quickly than the prior system making data more timely and relevant for decision making purposes. There will also be a greater emphasis on electronic tax filing with the goal of decreasing errors and misallocations. During the changeover, CDTFA had a hard cutoff of April 30 for tax returns. Allocating the revenue received through that period left some activity out of the current quarter, pushing it to the second quarter 2018. However, CDTFA will be disbursing the revenue related to the previously delayed payments with the June 2018 monthly allocation. In summary, the change in software and partial allocations in the first quarter 2018 payments will inflate actual dis- tributions in June 2018 and be included with second quarter 2018 data. Statewide Results Given the CDTFA changeover, the statewide first quarter 2018 receipts were 1.8% lower than the prior year. How- ever, once HdL adjusted the results for missing payments and other accounting anomalies, the results were 5.9% higher than the same period in 2017. A stellar rebound in building-construc- tion activity, compared to a year ago when gloomy winter weather depressed results, and continued increases in fuel prices, were the primary contributors to overall growth. Steady receipts from purchases made online also helped boost countywide use tax pool allocations. After a long period of solid growth in new car sales, much of the upward movement within this group is now coming from leases rather than pur- chases. Corporate tax breaks approved by Congress in December 2017, are ex- pected to have a positive impact on the industrial sector as businesses look to invest excess cash. Supreme Court Ruling On Thursday, June 21, 2018, the Su- preme Court ruled in a 5-4 decision to require out-of-state online retailers to collect sales taxes on sales to in-state residents. The physical presence rule as defined by Quill is no longer a clear or easily applicable standard, and the on- line interstate marketplace was not the prevailing issue before the court in 1992. In California, numerous online retailers already collect and remit state and local taxes, including 2 of the 3 companies involved in this Supreme Court case (Wayfair and Newegg). According to a study conducted by the California State Board of Equalization, the total revenue losses related to remote sellers for both businesses and house- hold consumers were about $1.453 bil- lion in fiscal year 2016-17. Unpaid use tax liabilities in 2016-17 average $60 per year for each California household, and California businesses average $171 per year in unpaid use tax liabilities. The CDTFA is currently reviewing the court’s opinion to determine next steps to support taxpayers.