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8.A. - Page 14 of 72 Overall, there is a concern in the long-term health of sales tax revenue. Changing consumer preferences and purchasing habits affect City sales tax revenues as well. Digital downloads (software, music, movies) are not taxable transactions. Younger consumers tend to purchase "experiences" (generally not taxable), rather than goods, which has a negative effect on sales tax revenue. Digital devices have emerged as the growth engine for all retail sales, which has led to extreme price awareness and, most importantly, online purchasing. Burgeoning trends toward online purchasing impact the City's sales tax revenue. Goods sold to Redwood City customers from out of state retailers generate use tax revenues, which are remitted to the county pool. In turn, county pool revenues are then distributed to all jurisdictions within the county. Goods sold at physical establishments located in Redwood City generate sales tax revenues, which are remitted directly to the City of Redwood City. Ultimately, increasing online sales will reduce local sales tax revenues. The U.S. Supreme Court's ruling in Wayfair v. South Dakota allows states more authority to require out- of-state sellers to collect use tax. Beginning in April 2019, if an out-of-state retailer has California sales of more than $100,000 or 200 separate transactions, the California Department of Tax and Fee Administration requires the retailer to collect and remit use tax. For FY 2019-20, an estimate of $525,000 is included in the forecasted sales tax revenue. Transient Occupancy Tax (TOT) revenues are expected to flatten in FY 2019-20. Although the TOT revenues received year-to-date are slightly less compared to the same time period last year, it is still within the range of the historical average projection. TOT revenues experienced a healthy growth during FY 2018-19. The slight decrease during the first and second quarters of this fiscal year may indicate the revenue has peaked and the growth is starting to slow down. Limited data is available for projections at this time, and for that reason, the projection for FY 2020-21 includes a conservative 1 percent increase and the projection for FY 2021-22 is flat. A planned major hotel, estimated for completion in 2021, should generate additional TOT revenue. Even so, in anticipation of a possible recession, the TOT projections remain conservative. Utility Users' Tax (UUT) revenue is expected to decrease by 6 percent in FY 2019-20. Beginning FY 2020- 21, UUT revenue stream will continue to slowly decrease. The significant decrease in revenue is seen in wireless telecommunication segment. As wireless telecommunication services become more of a commodity item, service plan rates have become very competitive, offering more services at lower rates. As a result, it is prudent to forecast conservatively for future UUT revenue. By City Council policy, UUT revenue has been dedicated to capital projects and is not reflected in the chart below depicting major General Fund revenue sources. Page 14 of 26 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.org 249