South Dakota’s July tax revenue comes in $14.7 million higher than expected

Renee Holman looks through the card section at Zandbroz Variety on Saturday, July 18, 2020 in Sioux Falls, S.D. The store has required customers to wear masks to prevent the spread of COVID-19.

The state brought in more in general fund revenue that expected in July, but the Legislature’s research agency is warning that things could worsen as the federal financial benefits boosting the state’s economy come to an end. 

South Dakota kicked off its 2021 fiscal year with revenue coming in at $14.7 million, or 8%, more than the Legislature estimated for July, according to the state Bureau of Finance and Management’s monthly revenue report released on Tuesday. The July revenue represent taxes collected by businesses in June and remitted to the state in July.

Sales and use tax revenue, the state’s largest revenue source, came in at $6 million more than the Legislature’s revenue estimate of $102.8 million for July, according to BFM. July was the first time sales and use tax has been above the Legislature’s estimate since the beginning of the pandemic. The state’s July sales and use tax revenue also represented a 10.3% growth compared to July 2019.

The pandemic’s impact on state revenue began to show in April’s revenue, when sales and use tax revenue was slightly below the estimated amount for the month. By May, which is revenue collected in April, sales and use tax was down by $6.2 million. Sales and use tax revenue began to bounce back the following month, when it was $2.3 million below the estimate for the month.

The state ended the 2020 fiscal year on June 30 with a $19.1 million surplus. However, the state brought in less revenue and had less in expenditures after Gov. Kristi Noem instructed state agencies to cut back on their spending amid the pandemic.

More:Gov. Kristi Noem announces state ended 2020 fiscal year with $19.1 million surplus

The Legislative Research Council warned in its July revenue report that the positive trend for revenue could be short-lived as the federal government’s financial help for unemployed residents ends.

The retail industry is strong, but the service industry is continuing to show weakness in the revenue numbers. There could be a “depressed trend in taxable sales” as the COVID-19 situation either continues or worsens, according to the LRC.

“What remains to be seen is the effect on retail trade and the services industry once the increased unemployment benefits expire and the economic stimulus payment dollars are all spent,” the report states.

More:South Dakotans have received $267M in unemployment benefits since March

South Dakotans have received $267 million in unemployment benefits since the pandemic began in mid-March, the state Department of Labor and Regulation announced last week. However, $187 million of that was the federal government’s $600 weekly boost for unemployed residents and that ended on July 31. 

President Donald Trump issued an executive order and memorandum that included a new $400 weekly unemployment boost, but only if the state provides 25% of that, after negotiations in Congress reached a stalemate. There’s likely to be a legal challenge to Trump’s actions.

Retail up, tourism down

Taxable retail sales were up by 12.2% in June compared to June 2019, which showed “a strong consumer demand in South Dakota despite COVID-19 and adjustments made by businesses,” according to the LRC. However, food stores, and building and garden supplies stories saw an increase, apparel and accessory stores and eating and drinking places saw decreases, according to the LRC. 

Taxable services sales were down by 6.1% in June compared to June 2019. Hotel and motel gross sales were down by 36.1%, personal services gross sales were down by 14% and amusement and recreation gross sales were down by 14.9%, according to the LRC. 

The tourism tax was down statewide by 34.6% in June compared to June 2019, but in the Black Hills, it was down 39.6%, according to the LRC.

Other revenue increased

Lottery revenue in July totaled $10.8 million, or 15% more than the Legislature’s July estimate, and contractor’s excise tax revenue totaled $13.9 million, or 11.7% more than the Legislature’s estimate for the month, according to BFM. Tobacco tax revenue was also up by about $352,000 compared to the estimate.

Insurance company tax revenue was up by $1.5 million. The state’s bank franchise tax revenue was $7.1 million more than estimated. However, $6.9 million was in payments related to audits and $4.3 million were payments for 2020 taxes that were delayed to the federal filing extension, both of which were considered one-time receipts by the state, according to BFM. 

Severance tax revenue came in at $2 million, or 132%, more than expected for July due to recent trends in gold prices, according to BFM.

Revenue from licenses, permits and fees was also up by $144,476 in July. 

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