Mitchell sales tax revenue remained strong in 2020 despite pandemic
The city of Mitchell collected $11.2 million in first- and second-penny sales tax throughout much of 2020, $500,000 more than the budgeted amount.
After battling the pandemic throughout much of 2020, Mitchell’s sales tax revenue managed to stay strong, exceeding city officials' expectations.
Despite the month-long business shutdown in April that affected many small local businesses, Mitchell collected $11.2 million in first- and second-penny sales tax throughout most of 2020, nearly $500,000 more than the budgeted amount of $10.7 million. Although the city is still collecting sales tax revenue generated in the month of December to officially close out 2020, City Administrator Stephanie Ellwein has been pleasantly surprised by the sales tax numbers considering the economic downturn brought on by the pandemic.
“Our first- and second-penny sales tax revenue was above what we expected to see, so that is a bright spot in the midst of the crazy year we had in 2020,” Ellwein said. “I’m very happy that the city is ending as well as we are, because we were prepared for a lot worse. Even though sales tax was great compared to the budgeted amount, we did still see some decreases elsewhere.”
Mitchell’s entertainment tax took a significant hit in 2020, dropping roughly 9% compared to 2019. As of the most recent report -- which doesn’t include all of the revenue brought in for the month of December that will be collected in February -- the entertainment tax revenue is at $755,428, a nearly $80,000 decrease from 2019.
The city collects a 2% sales tax on most purchases, and that is where the first- and second-penny references apply. In addition, the city collects a third of the percentage with the third-penny tax that is added to the city's entertainment sales tax, which applies to prepared food, alcoholic drinks, event ticket sales and lodging and is commonly referred to as the "bed, board and booze" tax.
In 2019, the city collected a total of $11,290,646 in first- and second-penny taxes. While there's still roughly one month's worth of sales tax revenue that's yet to be collected for 2020, Mitchell could surpass the revenue from 2019.
To no surprise, the second quarter of 2020 -- which includes the months of April, May and June -- saw the largest dip in sales tax revenue, with city having a nearly four-week closure of restaurants, bars, and recreation facilities in April.
However, given the unprecedented economic impacts from COVID-19, Ellwein said the slight decrease in 2020 is far better than what many cities across the nation saw. More importantly, Ellwein said the city’s sales tax revenue exceeding the budgeted amount in 2020 was one of the biggest goals that was achieved.
“We reduced expenses and cut back, and we met our goal, which is really, really good in the middle of the pandemic. That gives the council the ability to look at how they want to allocate those funds in the future,” Ellwein said. “Our departments did a great job at cutting back with what was going on and were fiscally responsible.”
According to Ellwein, 73% of the city’s tax revenue comes from sales tax, which helps fund city services and operational costs for divisions of the city government.
For Mitchell Mayor Bob Everson, the city’s sales tax numbers exceeding expectations reflect the importance of shopping local. Everson commended the City Council and Ellwein for fine-tuning a complex budget in the face of economic uncertainty. In addition, he said city department heads stepped up all year to operate within their “tight” budgets.
“When you support local business, it goes right back into your city,” Everson said. “The department heads did a really good job at carefully looking over their budgets and cutting down unnecessary spending.”
Another factor that contributed to the city’s strong sales tax revenue in 2020 was the remote sellers tax, which is generated from internet sales. The remote sellers tax was approved by the South Dakota Legislature in 2018 and enforced the distribution of sales tax revenue made from internet sales based on where the purchase is made. For example, if an internet purchase is made within city limits, the sales tax it generated would be distributed back to Mitchell just as it would be with a purchase from a brick and mortar store.
Mitchell racked up $175,085 in internet sales tax for the months of October, November and December 2020. (The complete year-end report on the remote sellers tax for the city is not yet available from the state.) Given the impact of the pandemic on in-person shopping and dining, Ellwein said the remote sellers tax was especially important in 2020.