City sales tax collections jump in May by biggest percentage in 2½ years

June 15, 2010

In a sign that the local economic recovery is gaining strength, Colorado Springs sales tax collections jumped in May by the biggest percentage in 2½ years when compared with a year earlier, helped by big gains in auto and building materials sales.

As a result of improved sales tax numbers in recent months, City Council members last week asked for revised revenue forecasts for the rest of the year, which will be presented to council on Monday, said Terri Velasquez, the city’s chief financial officer. Sales tax collections fund more than half of the city’s annual budget for services ranging from police and fire protection to parks and roads.

“The trend shows we are experiencing a recovery in sales tax revenue,” Velasquez said. “While we are still down from pre-recession levels, this is significant improvement.”

The $8.26 million collected last month by the city’s Financial and Administrative Services Department was up 10.22 percent from May 2009. May collections reflect consumer and business purchases made in April. It was the seventh consecutive month that collections have increased from the same month a year earlier. Sales tax collections so far this year are up nearly 6 percent from the same period a year ago.

Combined sales- and use-tax collections in May were up 14.17 percent from a year ago, and are up 8.21 percent so far this year from the same period a year earlier.

“The local economy is showing good signs of recovery, but it is not out of the woods yet and has a ways to go before it gets back to levels it was at during 2006 and 2007,” said Dave Bamberger of Summit Economics LLC, a local economic consulting firm.

 Use tax, which is levied on equipment and other items that businesses buy outside city limits and use inside the city, more than doubled in May from a year ago to $650,945;  May 2009, however, was the worst month for use tax collections since December 1990.

Collections of the city’s lodger’s and auto rental tax surged in May by nearly 17 percent from a year ago, the biggest percentage gain in 2½ years.

The biggest contributors to May’s sales tax gains were auto and building material dealers, which reported collections that increased 20.28 percent and 20.91 percent, respectively, from a year earlier.  Sales to businesses were up 18.19 percent.

Fred Crowley, senior economist for the Southern Colorado Economic Forum, said the increase in building material sales reflects both an improving local economy and the April 30 expiration of a federal income tax credit for first-time and some move-up home buyers. He predicted that building material sales will slow in the next few months, paralleling a slight slowdown in local housing construction, but said he expected overall sales tax collections to continue growing.

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