July 19, 2023

The days of double-digit percentage growth in city sales tax revenue might be over — at least for now.

Sales tax revenue in June for Sioux Falls was up 4.1 percent, giving the city a 12-month rolling average of 8 percent. That revenue primarily represents actual sales from May.

“So (it’s) slightly above the inflation rate; pretty good year to rate, we’ve been running about 5 percent,” director of finance Shawn Pritchett said in a monthly report Tuesday to the City Council.

Inflation in June came in at 3 percent, which is the lowest since March 2021.

“Food prices, while still coming down, are still hovering high at 5.7 percent,” Pritchett said. “We’re certainly not out of the woods yet but seeing progress over time.”

As far as sales tax revenue, “we do not have any industry-level data to look at yet … to really dissect where the numbers are going … but fairly pleased with where we’re at,” he said.

The most current industry data was in April. Both March and April sales tax had dropped in lumber, hardware and garden, likely related in part to the long winter, but also in home furniture and furnishings.

The entertainment tax shot up in June, with 17.4 percent revenue growth for a 12-month average of 10.4 percent.

“Very robust activity for this month,” Pritchett said. “This is very strong and a good indicator of consumer spending, especially in terms of use of discretionary income.”

Because restaurants make up a large portion of the tax, “you have to believe there was some robust activity there,” Pritchett said. “It’s certainly the strongest month we’ve had this year.”

The lodging tax was up 2.5 percent in June for a 10.1 percent 12-month average.

The city is basing its forecasting going forward on 5 percent sales tax growth. The 2024 operating budget will be released later this week.

There also will be a $5 million additional funding request for 2023 in highways and streets in anticipation of snow removal needs later this year.

In the Sioux Falls metro area, June sales tax revenue mostly showed solid increases, with a few exceptions.