April 11, 2023

Sales tax revenue in Sioux Falls is ahead of last year through the first quarter — but not necessarily enough to keep up with inflation.

Through March, sales tax revenue was up 4.6 percent year over year. The city started 2023 with a more sluggish 3.3 percent growth in January, which represents December sales. It increased to 6.1 percent in February and 5 percent in March.

While the city is seeing increases, it is “at a slower pace than we had seen in the past few years,” director of finance Shawn Pritchett said. “In a normal year, this growth would be solid — but with inflation, the numbers are not necessarily keeping up with a stubborn inflation rate that is only now beginning to show signs of coming down.”

The annual inflation rate is tracking about 6 percent.

By industry, apparel showed a drop in sales to start the year. Numbers from the state are available only through February so far. Taxable sales for apparel and accessories stores fell by $12.7 million in December and dropped by $3 million in January, likely pointing to declines in holiday-related spending as those months represents November and December sales.

“If you look at subcategories, almost all of it relates to family apparel whereas other category like men’s or women’s specific stores are consistent with prior years,” Pritchett said.

Remote or online sales showed $11 million in growth in January but declined in February by $740,000, “which is unusual month over month (from the prior year) as this had been a category growing consistently through COVID and beyond,” Pritchett said.

Taxable sales from electric, gas and sanitary services were down $12 million to start the year, though it was unclear why, he said.

The biggest category for taxable sales is department store and general merchandise stores. Those were up $8.5 million in January and $6.7 million in February.

“In 2022, we averaged $8.7 million increase per month,” Pritchett said. “So mostly in the same range — but (we) will continue to monitor.”

Wholesale trade of durable and nondurable goods, the second-largest sales tax category, was up $732,000 in January and $5.3 million in February after averaging $14.3 million per month a year ago.

Manufacturing taxable sales were up $11.9 million in January and $5.3 million in February after averaging $7.6 million in monthly increases last year.

Telephone communications taxable sales were up $1.6 million in January and $2.2 million in February after declining by $1 million per month last year.

The city’s entertainment tax revenue is up 6 percent for the year through March, and the lodging tax is up 4.3 percent.

Eating establishments brought in $844,000 more in taxable sales in January and $3 million more in February. Last year, they averaged $4.3 million increases each month.

Pritchett said there potentially was “a lot of inflation in those 2022 numbers. I expect weather played a large part in the January/February numbers. I expect this category to be strong in March based on the entertainment tax numbers for March, which were up almost 10 percent, and more than half our entertainment tax dollars typically come from restaurant sales.”

Pritchett said he plans to present 2022 financial results for the city April 18.