City sales tax growth attributed to inflation, COVID-19 recovery
City officials see more growth in sales tax revenue for fiscal year 2024, continuing a trend since the 2020 impact of COVID-19.
The recently adopted budget for fiscal year 2024 predicts a 2% increase in revenue generated by Columbia's sales tax.
Matthew Lue, the city's director of finance, said the recent increases can be attributed to inflation.
“We saw (inflation) on both the revenue and on the expense side,” Lue said. “The inflation … on some of the things that we purchased was much higher than inflation we saw on the revenue side.”
Lue noted that while the most recent increases are primarily driven by inflation, the rise in sales tax revenue in 2022 could be more attributed to economic recovery from the pandemic.
The city's projected sales tax revenue for FY 2023, which ended Sept. 30, is about $30.6 million, demonstrating a continued rise from the approximate $23.7 million received in 2020. Lue said that final revenue numbers for 2023 won't be available until February, although preliminary numbers will be shared in December.
The Downtown Community Improvement District, the association of downtown businesses in Columbia, saw a similar rise in sales tax revenue. Nickie Davis, the District’s executive director, said the rise follows a significant sales tax decrease during the height of the COVID-19 pandemic.
“Starting in 2021, we started having record-breaking sales,” Davis said. “We had better sales tax than we had basically ever seen.”
From May 2022 to April 2023, $810,999 was brought in, according to financial documents on the District’s website. That compares to $745,605 in sales tax revenue collected from May 2021 to April 2022, up from $507,315 collected as revenue from May 2020 to April 2021.
Conversely, the Loop — an organization representing businesses along Business Loop 70 — saw an increase in sales tax revenue during the COVID-19 pandemic. Carrie Gartner, executive director of the Loop, said this could be attributed to some of the items their businesses sell, such as home improvement utilities, seeing an increase in demand during that time.
"We are a different commercial area than ... say downtown or the mall," Gartner said. "We are certainly unique in how people spend money."
The Loop did see a drop in sales tax revenue in 2022 — $305,807 compared to $338,172 in 2021. Gartner said this was due to supply chain shortages.
Another drop to about $290,000 was expected in FY 2023, which Gartner said was predicted due to a business closure in the Loop, but the actual amount ended up rising to $316,869. Its revenue estimate for FY 2024 is $318,747, putting the Loop back around pre-pandemic levels.
Recently introduced taxes, specifically a use tax aimed at online sales from vendors outside of Columbia — often called the Wayfair tax — has also helped the city's coffers.
“It helped to mask the inflation that we saw in prices that we’re paying on some of the things … in the General Fund like the cost of concrete, cost of asphalt,” Lue said.
Lue said the use tax’s revenue was expected to come in at 10% of the revenue generated by sales tax but has instead come in slightly higher, at 12%. Lue added that this revenue gained from the tax will help the city build more streets and sidewalks.
The budget for FY 2024 lists that nearly $3 million in revenue is forecasted to be earned for the General Fund for 2023 by the use tax. It is projected to reach close to $4.3 million by 2028.
Additionally, the new marijuana sales tax is contributing revenue for the General Fund. Lue said the marijuana sales tax has helped the city offset some of the $10 million cost associated with the increase in employee salaries.
The FY 2024 budget estimates that about $1 million in revenue will be brought in from the tax, but Lue said that its future growth and uses are hard to predict.
“I believe by the end of the year we’ll have a full year of sales data,” Lue said of the marijuana sales tax, “and then we’ll have some of that information."