Despite rising inflation, volatile economy, Mitchell sees strong growth in sales tax revenue
Although Mitchell's sales tax increases are perplexing as the nation saw inflation rise as high as 9.1% this year - a jump that hasn’t been seen since 1981 - City Administrator Stephanie Ellwein said the city’s ability to collect remote sellers tax has been pivotal for Mitchell.
MITCHELL — In the face of soaring inflation and growing concerns of a recession, Mitchell’s economy has managed to stay strong this year.
Throughout the year, Mitchell saw substantial growth in sales tax collections each month. The increase in first- and second-penny sales tax has Mitchell on pace to surpass last year’s collections that came in at $6.1 million.
At the end of October, first- and second-penny sales tax collections were sitting at $5.56 million, up about $500,000 from the same time period in 2021. November and December’s sales tax have yet to be tallied. Considering they are historically two of the busiest shopping months of the season, odds are high the city will surpass last year’s total tax collections and notch another year of tax growth.
Although the local sales tax increases are perplexing as the nation saw inflation increase as high as 9.1% this year, a jump that hasn’t been seen since 1981, City Administrator Stephanie Ellwein said the city’s ability to collect remote sellers tax has been pivotal for Mitchell.
“If you look statewide, the average increase in sales tax for the past 10 years has been 4.1%, but we’re at 2.5%. We’re seeing slower growth than other first-class municipalities, but what has been really helpful for us to see more growth is the internet sales tax,” Ellwein said, noting it generates about $60,000 per month. “Without that, we likely would not be seeing the growth we saw last year and this year.”
According to Ellwein, the city collected a little over $714,000 from internet sales tax in 2021 in its second full year of being in place. The city began collecting remote sellers tax in late 2019 after the landmark U.S. Supreme Court decision, known as South Dakota v. Wayfair, granted the state the ability to collect online sales from internet-based companies that do not have a physical presence in South Dakota.
Depending on where an online purchase is made, the sales tax is distributed back to the state and to those communities just as it would be with a purchase at a brick and mortar store.
While Mitchell has managed to see sales tax growth this year, inflation has minimized the boost in revenue. Some city projects have tripled and quadrupled in costs compared to the initial estimates from previous years, such as the north wastewater treatment plant project that was initially estimated to cost around $3 million two years ago but jumped to $16 million this year.
Maintaining strong sales tax is critical for the city since it makes up the largest revenue stream to fund city services. According to Ellwein, sales tax revenue accounts for 57% of the city’s total revenue.
“If sales tax goes down significantly, it has a big impact on the annual budget,” Ellwein said.
Concerns proposed grocery tax cut could dent sales tax
Mitchell Mayor Bob Everson has concerns that sales tax revenue could take a hit if Gov. Kristi Noem’s proposed grocery tax cut takes hold. Noem’s grocery tax cut would aim to eliminate the state’s 4.5% sales tax on groceries.
According to Everson, the grocery tax cut could result in a loss of about $900,000, if state lawmakers adopt it in the near future.
“That’s a sizable amount of money that would impact the city,” Everson said.
Dist. 20 Representative Lance Koth said during an October meeting at the Mitchell Chamber of Commerce that the current proposed grocery tax cut would not eliminate municipalities from collecting its percentage of taxes.
Entertainment tax holding strong
Although Mitchell has lost a handful of restaurants and a major hotel over the past two years, the third-penny tax, also known as entertainment tax – which derives from taxes on lodging, prepared food, entertainment ticket sales and alcohol sales – saw steady growth. As of October, the city’s entertainment tax collections were just over $804,000, marking an increase of about $40,000 from the same time frame in 2021.
Mitchell’s entertainment tax is significantly propelled by the Corn Palace, which draws hundreds of thousands of visitors each year and hosts large events. While visitor numbers at Mitchell’s biggest tourist attraction were down throughout the tourism season this year, Corn Palace Director Doug Greenway said bus tours were strong. And buses typically equate to a boost in the local dining industry.
“When buses come, the people often eat lunch at our restaurants. We were coming off a historic tourism season last year, but visitor numbers held pretty steady this year,” Greenway said.