Sioux Falls sales tax revenue tracking flat year over year; entertainment drops

April 16, 2025

Sales were flat or showing declines in almost all major sectors in Sioux Falls to begin the year.

Sales tax is tracking 0.1 percent ahead of 2024 year to date, but showed a decline in March, which represents sales made in February.

For the month, sales tax revenue dropped 2.7 percent after showing positive year-over-year growth in January and February, which reflect part of the holiday shopping season and the start to the new year.

“I think we were pretty much expecting we were going to be flat in the first quarter because we had robust growth last year at this time, and it was going to be very hard to grow off those numbers,” director of finance Shawn Pritchett told the City Council on Tuesday.

Sales tax growth dropped multiple months later in 2024, which could lead to easier year-over-year comparisons in future months, he added.

“Sales taxes are cyclical,” Pritchett said. “When we’re down several years, the hope is we’re up above our expectations for several years as well.”

Many sectors showed month-over-month drops in March, including manufacturing, down 25 percent; lumber, down 20 percent; home furnishings, down 16 percent; and miscellaneous retail, down 27 percent. Department stores were up 2 percent, and remote retail sales were up 21 percent. Grocery sales were flat.

The entertainment tax is a choppy story to unravel, showing an almost 30 percent drop in March but reflecting what Pritchett calls a glitch at the state level that resulted in a correction of about $20 million shown in March.

Still, the overall trend is down 3.6 percent year over year. March “was a soft month for restaurants,” Pritchett said. “They drive our entertainment tax, and they were down 4 percent overall, so you’re seeing consumer softness.”

But for now, uncertainty is layered throughout the city’s budgeting, both for existing projects and programs expecting federal funds this year along with how tariffs could impact planning for next year.

“We just watch every day to see what the next shoe to drop will be,” Pritchett said.

Inflation is easing, down to 2.4 percent in March, driven by deflation in the energy sector, he added.

But it’s unclear how tariffs could impact the prices the city will pay for certain items.

“We buy a lot of capital equipment, we buy a lot of supplies, and we expect and are already seeing cost escalation as a result of that,” Pritchett said. “That will be a factor as we head into budgeting for next year.”

The city is monitoring federal funds used in everything from infrastructure projects and housing grants to health services and transit.

Some of the funding that appears most uncertain includes $1.8 million in HUD funds to help redevelop The Mercado block into mixed-use space including Southeastern Behavioral Health, as well as $3 million in reforestation funds for the city’s Parks & Recreation Department, Pritchett said.

 

 

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