City sales tax revenue shows unexpected surge in March

It’s somewhat unclear why, but sales tax revenue in Sioux Falls took a big jump in March.

Sales tax revenue was up 9.9 percent in March, representing actual sales made in February.

“Which is a pretty incredible increase,” director of finance Shawn Pritchett told the City Council on Tuesday.

“It’s not due to an issue with the Department of Revenue or corrective action.”

The financial start to the year has brought “a little better news overall,” Pritchett said. “A little cautious, but we’re seeing some positive things happening here.”

March’s revenue was up from negative 2.7 percent a year ago, “so we had an easier quarter to grow off of.” Through the first quarter, sales tax was up 6.5 percent.

“These last few years haven’t been exactly normal,” Pritchett said, adding that the average for the past five years is still more elevated than the historical average likely because of pandemic-related spending.

Manufacturing, wholesale trade and lumber are trending up this year, he said. Business services and construction both were up in March.

“So you’re seeing some strength on that commercial side and the business side,” Pritchett said.

Groceries were down 2 percent while department stores are up 2 percent. Restaurants, remote retail and miscellaneous retail all were up too.

“Robust business activity, some pretty robust discretionary spending going on,” Pritchett said. “This is a pretty dramatic uptick in some of the discretionary spending going on.”

It would be somewhat concerning if the spending came because of federal tax refunds and not consistent income growth, he said.

The entertainment tax year to date is up 8.3 percent, including a 44 percent increase in March versus being down 28 percent in March 2025 because of a state corrective action related to an entity that had overpaid in taxes.

“We’re going to see this massive increase,” Pritchett said, adding that if the category were factored out, revenue would be up 5.8 percent, indicating “decent” restaurant and liquor sales increases.

“We’ll see if that bears out in the month ahead.”

Lodging tax revenue for the year was essentially flat in the first quarter.

In 2025, sales tax revenue ultimately came in short $4 million, and overall revenue came in $1 million over budgeted expectations. That was driven by investment income and revenue from construction and liquor license-related fees.

“We don’t expect that to continue to going forward,” Pritchett said.

The city would need to grow at 6.4 percent in sales tax this year to hit budget because last year came in below projections.

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