Surging home construction and online sales combined to push up Colorado Springs sales tax revenue by nearly 10% in December despite tighter COVID-19 pandemic restrictions imposed in late November.
The year-end jump helped revenue from the city’s 2% sales tax finish last year ahead of the 2019 total, even as the state imposed a stay-at-home order in March and April and other pandemic-related limits continued for much of 2020.
Sales tax revenue fell by double-digit percentages in March and April, which prompted Mayor John Suthers to cut more than $20 million from the city’s budget and prepare for further reductions this year.
“When you consider that March and April were so gloomy and we were preparing for cuts, to end the year with an increase is pretty remarkable,” Suthers said Thursday. “We are still expecting a total revenue loss of $10 million to $12 million, but you couldn’t ask for a better situation considering where we had been early in the year.
“Without another shutdown, I am optimistic about 2021,” he said. “If we have a halfway normal summer tourism season, we could have an outstanding economic year.”
December sales tax revenue rose 9.6% from December 2019 to a record monthly total of nearly $19 million, the fourth consecutive monthly increase of at least 8% on a year-over-year basis, according to a report from the city’s Finance Department.
Sales tax revenue fell in just three months early in the pandemic and for all of 2020 was up $1.42 million, or 0.8%, from the previous year to $177.7 million.
The city levies a 2% sales tax on consumer and business purchases of vehicles, appliances, business machines and other items. The tax is a key economic indicator and funds more than half of the city’s general fund that pays for public safety, roads, parks and other services.
The city also collects special taxes for road repair, public safety, trails, open space and parks that last year totaled $104.3 million.
The December gains came from sales of building materials and from the broad miscellaneous retail category, which includes online sales.
Building material sales were up 54%, while miscellaneous retail jumped 43.2%. Revenue generated from the two categories combined to make up a third of December’s total and offset by more than $1 million a $753,813 decline in revenue from hotels, motels and restaurants in the same month.
“One of the saving graces of the pandemic has been low interest rates. With many people working from home, they wanted more space and bought new homes despite double-digit price increases,” said Tatiana Bailey, director of the University of Colorado at Colorado Springs Economic Forum.
“Builders are saying they expect a 10% increase in housing construction again this year and another 10% in 2022,” she said. “They have a backlog of homes under contract that extends to the end of the year.”
Other key points from the sales tax report include:
• Revenue from the city’s tax on hotel rooms and rental cars in December fell 30% from a year earlier to $270,638 and ended the year down nearly 40% to $4.53 million, the lowest annual total since 2014. Suthers said the revenue drop likely will mean cuts to agencies that receive funds from the tax, including Visit Colorado Springs, the Colorado Springs Chamber & EDC, the Cultural Office of the Pikes Peak Region and the Colorado Springs Sports Corp.
• Collections from the city’s use tax, paid on equipment businesses buy outside the city, rose nearly 20% from a year earlier to almost $1.1 million in December. But the total for 2020 was down 6.9% to $8.58 million. Combined sales and use tax revenues in December rose 10.1% to a record $20.1 million and finished 2020 up nearly $800,000, or 0.4%, to $186.3 million.
• The biggest percentage increase in sales tax revenue in 2020 came from medical marijuana dispensaries, 40.9%, but the category makes up just 1% of overall sales tax revenue.