Colorado Springs sales tax collections, a key city government revenue source, slumped at year’s end after an up-and-down performance during 2023.

In January, the city collected $22.3 million in revenue from the tax it levies on consumer and business purchases of items such as TVs, appliances, motor vehicles, clothing and building materials — a 4.7% decline when compared with the same time a year earlier, according to a report released this week by the city’s Finance Department.

Much of January’s collections reflect spending that took place in December and during the height of the holiday shopping season.

As a result, the decline in year-end collections — which came one month after a strong 7.1% spike in sales tax revenues — was puzzling, said Charae McDaniel, the city’s chief financial officer.

“We have been bouncing around, flat growth, very near zero for much of the year, and then we kind of had a big increase and a big decrease there in December and January,” McDaniel said.

“There’s nothing that stands out in the data that would explain clearly or well why those variations took place to that degree in those last two months.”

For the 12-month reporting period that ended with January’s collections, the city’s sales tax generated a total of $237 million in revenue, almost unchanged from the $236.9 million collected during the previous 12 months.

During the most recent reporting period, revenues increased on a percentage basis in five of the 12 months and declined the rest of the time. Revenues rose as high as December’s 7.1% gain, but also fell as much as 6.3% in May.

Some key retail categories tracked by the city struggled in January and over much of the year, McDaniel said.

In January, those declines included furniture, appliances and electronics, 15.1%; building materials, 8.2%; auto repair and leases, 5.2%; clothing stores, 3.5%; grocery stores, 3.4%; and department discount stores, 2%.

Soaring interest rates and borrowing costs were to blame for the struggles of some of those retail categories, McDaniel said. When mortgage rates surged, for example, fewer homes were built and sold in 2023. Reduced housing activity also meant fewer purchases of furnishings and other items to stock those homes.

“The only thing I know to attribute it to is interest rates still being higher than the consumer can tolerate for financing big-ticket items,” McDaniel said of the lackluster performance of the city’s sales tax in the last year.

In January, revenues from motor vehicle sales eked out a 0.8% increase on a year-over-year basis. Other retail categories that saw percentage gains in January were business services, 8.4%; restaurants, 3.9%; and hotels and motels, 3.8%.

The city relies on its sales tax to generate revenues that finance more than half of its general fund budget, which includes spending on basic city services such as parks, roads and public safety.

As a result, when sales tax revenues sag, the city feels the impact. That’s why McDaniel said the city implemented cost-saving measures last year, which included a three-month delay in hiring for open positions and restrictions on nonemergency spending.

For 2024, the city is forecasting a slight bump in sales tax revenues over its collections in 2023, McDaniel said. That’s based on some economic indicators that suggest an uptick in spending this year, such as Pikes Peak Regional Building Department figures that point to an increase in building permit activity, she said.

“I still anticipate some small growth, at least, in the sales tax revenue through 2024,” McDaniel said.

Other takeaways from the latest city sales tax report include:

• The city’s use tax, which is levied on equipment and machinery purchases made outside Colorado Springs for use inside the city, totaled $924,791 in January, a 28.1% nosedive on a year-over-year basis. For the city’s 12-month reporting period that ended in January, use tax revenues totaled $10.7 million, down 2.2% from $10.9% over the previous 12 months.

• A separate tax on hotel rooms and car rentals, which is an indicator of tourist activity, collected $544,337 in January, a 6.1% year-over-year increase. For the 12-month reporting period, the tax generated $10 million or a 2% gain for the year.