City sales tax trends flat as multiple sectors show slowed growth or declines

May 21, 2025

Sioux Falls saw slightly better sales tax growth in April, but the year remains below expectations, and longer term the declines will force budget cuts, according to the city’s top finance official.

Year to date, sales tax is up 0.8 percent, compared with 1.5 percent at the end of 2024 and 3 percent a year ago.

April sales tax revenue, which largely includes March sales, was up 2.7 percent over a year ago, though the city had “very minimal growth at only 0.1 percent in April of 2024,” director of finance Shawn Pritchett told the City Council on Tuesday.

“We continue to monitor this. We have more capacity for growth I would say in the last three quarters of this year just based on the lackluster growth we had last year over the same time period.”

This April also included a $1 million adjustment because of a business that had overpaid sales tax for years.

The entertainment tax is down 2.9 percent year to date.

There’s “a little better story to tell there” because a large portion of the drop was a corrective action by the state “where something was overreported,” Pritchett said. “We did see really a flattening there primarily because restaurants were growing by 1 percent.”

The lodging tax dropped for the second consecutive month, down 5 percent year over year.

“We are seeing still more softness on the occupancy side from where we were last year at this time,” Pritchett said.

By category, the city continues to see downward trends in many sectors, including manufacturing, which is down 12.7 percent, and grocery stores, which essentially are flat.

There’s still “a lot of negative territory on both the business and consumer side, and not surprising given some of the uncertainty there is not just locally but on a national level,” Pritchett said.

Inflation eased a bit, with a 2.3 percent rate in April, down from 2.4 percent in March and 2.9 percent at the end of 2024, “which is positive to see,” he said.

April’s consumer price index at 2.3 percent growth is at its lowest rate since March 2021. Food cost inflation dropped to 2.8 percent from 3 percent. Core inflation, which factors out food and energy, was at 2.8 percent, compared with 3.2 percent at the end of 2024.

It was “positive to see some good momentum or good movement on that,” Pritchett said.

With 0.8 percent annual sales tax growth, the city has some catching up to do to hit its adjusted 3 percent goal. The budget is based on 6.6 percent growth because the city failed to hit its sales tax growth target last year. Some of the sales tax revenue reduction is being offset by increased investment income and bank franchise fees.

The decline will be reflected when the city proposes its 2026 budget and its 2026-30 capital improvement program, he said.

Short and long term, more cuts likely will be needed because of state and federal policy changes. This year, up to $38.6 million in federal funds the city anticipated receiving might not come through, prompting programs or projects to be cut or delayed. State-related property tax changes will cause at least $25 million in lost revenue to the city over the next decade, Pritchett said.

“It’s lost revenue forever,” he said. “That’s a permanent loss, and it requires a permanent recalibration of services in order to support that. If we do not make adjustments, we will deplete our reserves within 10 years.”

The city estimates that over the next three years $8 million to $10 million will need to be cut from the general operating budget. Property taxes represent 38 percent of that fund, which covers the day-to-day operating costs of the city.

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