Year-end financial data shows Federal Way, in 2010, experienced a slight increase in sales tax revenue compared to 2009.

Sales tax revenue is defined as revenue generated from a tax charged at the point of purchase for certain goods and services. A 9.5 percent sales tax is charged in Federal Way. The City of Federal Way receives less than 1 percent of the total sales tax collected on a purchase.

In 2010, Federal Way received $10,708,951 in sales tax revenue. This reflects a 1.2 percent increase over 2009’s year-end total and exceeded, by the same percentage, what had been budgeted for 2010. Tho Kraus, the city’s finance director, said she had estimated that 2010’s sales tax activity would be similar to that seen in 2009. The revenue increase over the year’s time is slight ($125,648), but it’s better than a deficit.

“At least it’s going in the right direction,” Kraus said.

Retail sales tax drops in 2010

With $5.7 million, the retail sector continued to produce the majority of the city’s sales tax revenue. However, retail sales brought in 0.9 percent less tax revenue than they did the previous year.

The South 348th Street block and the Federal Way Crossings both produced less tax revenue in 2010 than in 2009. The closure of big box retailers such as Circuit City and Joe’s greatly contributed to the decrease, Kraus said.

The Commons at Federal Way did not perform as well as hoped. The mall produced nearly $31,000 (3.1 percent) less sales tax in 2010 than in 2009. From month to month, sales tax revenues were lower than those seen the previous year, Kraus said.

“A lot of the major stores experienced decreases,” she said.

On the flip side, the Pavilion Center and the area of South 312th Street to South 316th Street saw positive revenue trends. The Pavilion Center brought in $17,000 (3.3 percent) more than it did in 2009. Electronics and appliances sold well in this area. The South 312th Street to South 316th Street zone was responsible for $5,000 in additional sales tax revenue. General retail merchandise, retail automotive and gas sold well in this area. However, the sales areas still brought in less sales tax revenue than either the mall or the South 348th Street retail block. 

Along with retail, Federal Way’s transportation/utility, manufacturing, and finance/insurance/real estate categories reflected decreases in sales tax revenue. The manufacturing industry, comprised of wood product manufacturing, printing and related support and furniture related products, saw the biggest revenue dip: 31.7 percent (down $66,920 compared to 2009). The finance/insurance/real estate sector closed the year with revenues 13.6 percent ($37,453) below 2009’s numbers. This was primarily due to a fall in vehicle and equipment rental and leasing, Kraus said.

Positive tax revenue

A handful of industries represented in Federal Way ended the year with positive growth in sales tax revenue. The service, construction, wholesaling, information, and government sectors all brought in more tax revenue than they did the year previous. The government sector saw a 59.6 percent ($64,000) increase over 2009. The service sector finished 3.1 percent (up $74,000) stronger. The information sector also saw a positive increase (13.3 percent, or $69,313). Field audits, performed by the state Department of Revenue, accounted for the majority of the increases in the information and the service sectors, Kraus said. 

In all categories, some months were bigger moneymakers than others. April brought the first increase (4.7 percent) over 2009. August was another good month. Sales tax revenue jumped 8.3 percent compared to the previous August. November reflected a 4.4 percent increase. The year finished strong as well. December sales tax revenues were 5 percent higher than the same month the previous year.

2011 predictions

It’s too early for Kraus to predict Federal Way’s 2011 sales tax revenue, including that from the city’s largest revenue generator — retail. However, the National Retail Federation (NRF) is predicting a 4 percent jump in nationwide retail sales. Increased sales would equate to increased tax revenues generated from those sales.

Kraus called the NRF growth prediction optimistic. Even if retail sales increase as a whole nationwide, that does not mean Federal Way will see the same results. And even if Federal Way does see a jump in retail sales and thus, retail sales tax revenue, that does not automatically equate to a growth in the city’s total sales tax revenue. Other industries could offset growth seen in the retail sector.

Still, NRF’s prediction is based on months of 2010 consumer spending reports, spokeswoman Kathy Grannis said. Consumer confidence appears to be on the rise and consumers are spending more in the retail sector, she said.

In early 2010, the NRF forecasted a 0.5 percent growth in national retail sales for that year, Grannis said. Actual sales grew by 3.7 percent, she said.

“The strong holiday season certainly helped boost the end of the year result,” Grannis said.

Kraus said she and the city’s finance department put forth conservative estimates of what it expected to see in terms of the 2010 sales tax and will continue to issue conservative projections for what 2011 and 2012 will bring.