New York City’s taxable sales grew by 18.1% in the first three quarters of the latest sales tax year (STY, March 2022 to February 2023), with leisure and hospitality sales on track to exceed pre-pandemic levels, according to a report released today by State Comptroller Thomas P. DiNapoli.
“The decline in visitors and commuters at the onset of the COVID-19 pandemic resulted in a drop in sales tax collections two years in a row for the city,” DiNapoli said. “The return of travelers and office workers helped drive New York City’s rebound in collections last year and tourism-related sectors such as leisure and hospitality continue to recover from their pandemic lows. Sales growth has begun to slow, and my office expects growth to return to normal in the near future.”
At the onset of the pandemic, local consumption in New York City fell drastically as shutdowns and social distancing were enforced and commuters and visitors stayed away. Total taxable sales in the city declined by $42.4 billion to $140.1 billion, a drop of 23.2% from STYs 2019-20 to 2020-21 while the rest of the state remained relatively stable.
The two biggest contributors to taxable sales (trade, transportation and utilities at 45.1% in STY 2019-20 and leisure and hospitality at 21.2%) were disproportionately impacted by the pandemic. However, leisure and hospitality fared worse in the city than in the rest of the state, dropping 66% to $13.2 billion in STY 2020-21, compared to a decline of 27% across the rest of the state.
At the same time, DiNapoli’s report notes two changes to New York state tax law may have contributed nearly $540 million in sales tax revenue for New York City over STYs 2019-20 and 2020-2021 – the change of definition of “nexus,” or presence, from a physical location to a measure of sales made to New York residents, and a greater capture of sales taxes on out-of-state (internet marketplace) online purchases made within New York.
One year later, in STY 2021-22, total taxable sales for both New York City and the rest of the state recovered and exceeded pre-pandemic levels to reach record highs. The city’s taxable sales increased by $43.2 billion to reach $183.3 billion, up 30.8% from the previous year.
In STY 2021-22, taxable sales in most sectors in the city exceeded pre-pandemic levels but some, including leisure and hospitality and construction, still lagged behind. Leisure and hospitality taxable sales also shrunk in size, making up 15.2% of total taxable sales in the city compared to 21.2% prior to the pandemic.
In the first three quarters of the current sales tax year, the city and the rest of the state experienced a slowdown from the significant growth in 2021-22, although the city’s growth was much stronger than the rest of New York – a gain of 18.1% to reach $158 billion. The rest of the state grew 4.6% to reach $206.6 billion.
As New York City’s overall taxable sales begin to normalize from their pandemic-fueled levels, various economic sectors, most notably leisure and hospitality, continue to recover their pandemic declines.
The city expects sales tax collections to grow by just under 7% in its 2023 fiscal year, compared to over 30% in its fiscal year 2022 (ended in June 2022). The city’s estimate is conservative given elevated prices and continued consumption, which show fiscal year-to-date collections through March 2023 at 15% higher than the same period a year ago. As national retail sales growth slows from its double-digit pace of 2021, city retail sales and associated revenues could see a return to historical growth rates following the next two fiscal years.
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