April 27, 2022

Even factoring out historic inflation, Sioux Falls is experiencing double-digit percentage growth in sales tax revenue.

For March’s report, which reflects sales in February, sales tax revenue increased 17.2 percent. For the past 12 months, growth has averaged 21.9 percent.

In the past year, factoring out inflation-related increases, the city still is experiencing 15 percent natural economic growth, director of finance Shawn Pritchett told the City Council on Tuesday.

“It has been on an upward trajectory,” he said.

But so has inflation, which reached 8.5 percent in March — a level not seen since 1981.

“It is a continuing challenge, continuing to escalate,” Pritchett said. “We don’t know at what point we might hit a ceiling on this.”

Energy is driving a large part of inflation, he said. In March, it was at 32 percent driven by increases in gasoline, electricity and natural gas. Food costs were up 6.9 percent, and all other goods and services were up about 6.5 percent.

“That’s going to be a driving and primary concern,” Pritchett said, adding the city will need to factor in inflation when preparing budgets and projections.

The city’s entertainment tax, which reflects money spent in bars, restaurants and hospitality, was up 22.1 percent in March and is up 36.2 percent for the past 12 months.

The lodging tax was up 34 percent in March and has averaged 84 percent for the past 12 months. Much of that is driven by higher rates as opposed to higher occupancies, Pritchett said.

“It’s still very much more reliant on leisure travel than it was previously,” he said, adding the city has not seen a rebound in business travel-related spending yet.

The city’s sales tax might not continue to boast such robust year-over-year increases, Pritchett cautioned.

In the second quarter of 2021, the city saw 24 percent and 35 percent year-over-year increases in April and May.

“Will we be able to sustain increases over and above those kind of growth rates?” he said. “The first three months of last year were growing, but they weren’t growing as much as what they were the rest of the year.”

That also could be a similar story in the entertainment tax, which saw accelerated growth last year, he said.

Here’s a look at the March sales tax report from communities in the Sioux Falls metro area: