Spearfish sales tax collection holding strong for now

Courtesy photo

SPEARFISH — With the full economic impact of the COVID-19 pandemic yet unknown, Spearfish city officials are cautiously optimistic while remaining prepared for a moderate downturn.

“We’ve been running reports every week with three different options,” Finance Officer Michelle DeNeui said. “There’s the worst case scenario, the moderate case scenario, and then the best case scenario.”

DeNeui explained that the city has been proceeding under the moderate case scenario in which it expects to see a 50% decrease in tax revenues for the remainder of 2020. So far, however, 1st and 2nd penny revenues have remained fairly balanced.

“So overall through the year, as we’ve gone so far, we are up 2% compared to 2019,” DeNeui said.

But that number, DeNeui said, is the result of a fiscal rollercoaster in which some month’s tax revenues supersede the previous years’ counterpart and dip way below in others. For example, in January of 2019 the city received $332,408.71 in tax revenue. In January 2020, the city received $408,543.32 in tax revenue. That reads on the monthly sales tax report as 23% more revenue than what the city was expecting to receive in January, or 123%.

In February, the city received 92% of its expected revenue; in March, 105%; in April, 139%; in May, 80%, and in June the city received only 67% of its expected revenue.

“That ate away a lot of the gain that we had early in the year so if we continue on with 67 or even less percent, July through September, we’re going to be in that worst case scenario,” DeNeui said.

DeNeui said part of what is keeping Spearfish’s sales tax revenues down going into summer could be the very same reason other communities in the state are seeing such high revenue numbers.

“I think we’re seeing it because those customers are not traveling to Spearfish to purchase, they’re purchasing locally, which that’s great for all of our communities if people shop locally, but we might take a hit on our side,” she said.

However, DeNeui explained that sales tax is collected by the state and is then distributed to the city twice a month. So actual sales tax numbers for a given month can also be directly impacted by the states collection cut of dates for the previous month. The state typically sets a cutoff date for sales tax collecting of the 22nd or 23rd of each month.

“In June, (the state) cut off the collections on the 16th of the month, and we’ve already received that payment so we won’t get any more payments for the month of June, so we’re missing about seven or eight days that we would normally have for collection so any vendor or any business that would file and pay their taxes between the 17th of June and the 23rd of June, we actually won’t receive until July,” she said.

DeNeui said because of the extra revenue collected in June being applied to July’s numbers, the city could see an increase, much like it saw at the beginning of the year.

“January we were up 23%, well that could have been because in December (the state stopped collecting sales tax) a week early also and so we got an extra week onto January’s payments,” she said.

Major special events like the Sturgis Motorcycle Rally, however, are another sideline item all together. DeNeui said it could take until November to determine the economic impact the Rally in August could have for the city.

“So we’ll usually see that money come in in October timeframe and that’s why we’ll kind of wait and see how we look come November to see what that impact to us was,” she explained. “There’s not a lot of time to make adjustments before the end of the year and that’s why we’re trying to pre-plan.”

DeNeui said some of the steps taken by the city to cut expenditures in preparation for a loss in revenue have already shown a promising result for the city’s outlook.

“We should be closer to 50% expended, and a lot of departments are only sitting at maybe 30, 35-40% because of those cuts,” she said.

DeNeui also said the city is already taking measures to plan for the 2021 budget.

“The budget may be set at a certain amount but department heads may be given the direction that only 60% of that budget authority is available, the remaining 40% is only if our revenue collections are within acceptable revenue percents,” she said.

DeNeui said she and other city officials will continue to closely monitor Spearfish’s revenue numbers and adjust their budget restrictions accordingly.

“I’ll just keep watching it every month as they come in and if everything is really, really good like other communities are seeing then we might change gears,” she said. “But as of right now we’re still being very hesitant because there’s always that unknown factor out there.”

As for now, DeNeui said community members can help boost the local economy by continuing to shop local.

“(I) just encourage our citizens and our local communities to shop local,” she said. “It really does help our community as a whole.”

To view DeNeui’s monthly sales tax reports visit www.cityofspearfish.com/199/City-Sales-Tax.

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