Vanishing tax base for counties? 2017 on pace for record store closings

Counties could see 9,000 stores close in their communities in 2017, outpacing the Great Recession in 2008 

The days of hanging out at the mall, spending a leisurely day shopping and piling your car trunk full of shopping bags appear to be on the wane as a “perfect storm” of factors align, changing the retail landscape and possibly counties’ bottom lines.

Counties across the country could see nearly 9,000 stores close in their communities in 2017, outpacing closures during the recession of 2008, according to a report released recently by brokerage firm Credit Suisse.

The factors leading to store closures include increased shopping online, “overbuilding” of shopping centers in past decades and demographic changes. Here’s a look at some of the trends that could mean a hit to counties’ budgets.

Store Closings Record

Like many consumers across the country, Belmont County, Ohio’s 70,000 residents are noticing fewer brick and mortar retailers in their communities. “We have seen too many store closings in our county,” said Belmont County Commissioner Mark Thomas. 

“Kmart, Radio Shack, HHGregg, MC Sports have either closed or are in the process of closing,” he said. “Unfortunately, the county will be losing Sears, as I am sure they will be closing this or next year.”

In McIntosh County, Ga., population 14,000, located halfway between Savannah and Jacksonville, Fla., it’s even more dire. The Darien Outlet Center just off of Interstate 95 was thriving 10 years ago, and was about 80 percent occupied. Ten years later, the occupancy is at about 25 percent, and it wasn’t just the stores and shoppers that left. The county saw an 80 percent drop in tax revenue, according to the Georgia Chamber of Commerce.

In addition to the stores mentioned by Thomas, other stores across the nation closing locations this year include Macy’s (68 stores), J.C. Penney (130 locations), The Limited and American Apparel. Store closures have been announced, since early April, in 2,880 locations, according to the Credit Suisse report.

Analysts note one of the reasons stores are closing: Companies overbuilt shopping centers from 1970 to 2015, when malls grew twice as fast as the U.S. population, according to a report by Cowen and Company.

Impact on County Budgets

What impact do store closures have on county budgets? In Ohio, counties have limited taxing authority, Thomas pointed out, so many counties depend upon sales taxes to help balance their budgets. 

“Our sales tax numbers have been down for the past six months and I assume they will continue to go down, for now, until other retailers locate in this vacant space,” he said.

The news isn’t all gloom and doom. “We had an Elder-Beerman [department store] close here on Feb. 28, but it is being replaced by a Marshall’s store.”

In Polk County, Mo., Debbi McGinnis, collector of revenue, said: “We know we are losing sales tax revenue, but it’s difficult to calculate. Also, while Amazon will now be collecting sales tax in Missouri, we won’t get revenue from the Amazon ‘marketplace,’ (third-party sellers) and that’s a huge chunk of business. Our county hasn’t yet suffered from a reduction in sales tax but I believe our numbers would be much higher if online purchases were taxed. I believe we are on a slippery slope.”

Online Shopping

The elephant in the room is the increasing number of consumers shopping online, with Amazon.com reporting retail sales of $35.7 billion in the first quarter of 2017, up nearly 23 percent from a year ago. Last year, WalMart scored $12.7 billion in e-commerce sales, while Apple and Home Depot reported sales in the $5 billion–$6 billion range.

The 1992 Supreme Court decision in Quill Corp. vs. North Dakota prohibits states from imposing sales and use tax collection obligations on vendors that don’t have a presence in a state.

As Amazon has grown and began adding warehouses in more locations to fulfill its promises of speedy delivery, it’s expanded the number of states where it collects sales taxes. Starting April 1, the retail colossus began collecting sales taxes in the 45 states that levy the tax.

But the picture is still fuzzy as to the amount of sales that counties will see. “While we do see some sales taxes from online retailers like Amazon, I have yet to see an explanation from the State of Ohio, Department of Taxation, on how it is directly getting to Belmont County,” Thomas said. 

“I do know this though, I can almost guarantee that there is not an apples-to-apples payment from online retailers versus the brick and mortar stores located in Belmont County.”

“In the end, too many of us are shopping online and the national retailers are taking a hit that they probably may never recover from in the near and far future,” Thomas said. “Consumers’ spending habits and options have changed and I really do not see traditional retailing ever returning to its former self.”

Demographic, Population Shifts

Large retailers are also the victims of a population shift and changing demographics. Fewer Millennials are flocking to the suburbs, where many regional malls were built in the 1970s and 1980s, according to George Ratiu, director of Quantitative & Commercial Research for the National Association of Realtors.

Ratiu also zeroed in on changing demographics, with more of the U.S. population either shopping high-end retailers or low-end discount stores. Stores such as JC Penney and Sears, that once served the thriving middle-class, are vanishing.

Congress Eyes Legislative Fix

Congress is once again trying to create a level playing field for brick and mortar stores by reintroducing legislation last month that would require remote sellers to collect sales and use taxes.

“The Marketplace Fairness Act is about supporting jobs and services we have in our towns while ensuring states have the ability to collect taxes they are owed, if they choose to,” said Sen. Mike Enzi (R-Wyo.), in a statement.

Enzi introduced the bill with Dick Durbin (R-Ill.), Lamar Alexander (R-Tenn.) and Heidi Heitkamp (D-N.D.).

“Right now, thousands of local brick and mortar businesses are forced to do business at a competitive disadvantage because they have to collect sales and use taxes and remote sellers do not,” Enzi said.

“This legislation promotes internet fairness by putting Main Street businesses on a level playing field with online retailers,” he said.

“In 2013,” he noted, “the Senate passed this bill with bipartisan support. It’s time to give states the right to enforce their own laws without having to get permission from Washington.”

The House has introduced similar legislation; NACo supports both pieces of legislation which would allow states and counties to enforce existing sales tax laws on remote purchases.