Small counties big on sales tax

4 had largest jump from '01 to '06, figures show

December 24, 2007|By Kate Prahlad | Kate Prahlad,Capital News Service

Four of Maryland's smallest counties saw some of the biggest increases in sales taxes per capita between 2001 and 2006, according to figures from the Maryland comptroller's office.

Garrett, Dorchester, Kent and Caroline counties ranked second through fifth in sales tax growth per person in the state, with per capita collections rising by about one-third in each county.

Only Carroll County saw a higher per capita growth in sales taxes, with a 41.7 percent rise over the five years, from $344.90 per resident in 2001 to $488.75 in 2006.

For each of the five counties, the growth in sales taxes per person far outstripped the growth in population during the period. Officials believe the increase came from more disposable income, greater development and tourism and, in one county's case, the rejuvenation of a single shopping center.

"Recently, there's a shopping center that was moribund that's been reinvigorated by a developer," said J.O.K. Walsh, executive director of the Caroline County Economic Development Corp. "We certainly haven't had the same increase in population" that other counties have.

Caroline County's population grew by 8.7 percent to 32,617 residents in 2006, according to the Census Bureau, while its per capita sales tax collections jumped 32.8 percent, from $146.52 to $194.63 per resident in 2006.

The total tax collected from the five counties is dwarfed by totals from larger counties: While Montgomery County sent $446 million in sales tax to the state in 2006, for example, Garrett County collected a little more than $15 million, and Caroline collected $6.4 million. And on a per-person basis, the four counties were in the middle to the bottom half of the state.

Carroll County sent about $83.2 million to the state in 2006. The president of that county's Chamber of Commerce thinks there's a simple explanation for the increase: County residents have more money to spend, which means more taxes.

"My guess on this is what you're seeing is a rise in spending and average income in Carroll County," said Richard Haddad, the chamber president. "The county's average income and spending have improved, so people are buying more."

Haddad said the "affluent, bedroom community" residents earn larger incomes in other counties and bring home more "discretionary money" to Carroll.

In Caroline, Walsh said, people might not be spending more, but they might be spending more in the county because high gas prices have forced them to shop near their homes.

"People in Caroline have historically gone into Delaware or into Talbot County to shop," he said. "I suspect that with gas prices, people aren't making those trips as readily."

That reasoning sounded reasonable to Peter Morici, a business professor at the University of Maryland's Robert H. Smith School of Business.

"If the economy is slow but doesn't tank, the revenues go up as people stay close to home," Morici said. "Sales tax only comes from two places: everyday living and tourism."

Tourism was behind the sales tax increases in Dorchester and Garrett, officials there said.

The opening of the Hyatt Regency Chesapeake Bay in Cambridge has had a "domino effect" on the Dorchester County economy, said Mark Heckler, executive director of the Dorchester County Chamber of Commerce.

"If I had to put my finger on any single causal reason, the Hyatt is just about five years old," Heckler said. "That was a serious impetus to business and residential growth.

"It's been a huge shot in the arm to the local economy, and I think certainly downtown Cambridge is in a transition mode toward tourism," he said.

Garrett County officials credited the tourism industry for spurring retail growth and converting visitors to residents - both of which boost sales taxes.

"We are a tourist destination point," said Garrett County Administrator Monty Pagenhardt. "There's a lot of that here, and growth has increased because of that."

The outdoors is the big tourist draw for Garrett, said Pagenhardt, citing the Adventure Sports Center International in McHenry. The center has an artificial mountaintop whitewater course and rock-climbing wall, and leads hiking and biking tours around the Fork Run Recreation Area.

"We always attract summer [visitors] with the boating, water skiing," Pagenhardt said. "We've been trying to attract an increase in the shoulder seasons - spring and fall."

Jim Hinebaugh, the county's economic director, said home construction around Deep Creek Lake, a big tourist draw, has kept up sales tax spending and economic growth in the county in general.

But Morici warned that tourism growth is not always reliable.

"Sales taxes from residents are a fairly reliable source of revenue," he said. "But growth is less predictable in the tourism area, as some places catch on, then might turn down for a while as they go in and out of fashion."

"If the economy turns south, the revenues may fall off more rapidly, unlike in Prince George's, where they are not solely dependent on tourism," he said.

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