Davis told The Associated Press on Wednesday he's not sure how he will pay.
"To me, it's an expensive but valuable lesson learned," said Davis, 45.
Auditor Stacey Pickering issued the demand Wednesday after a seven-month investigation. There are no criminal charges.
"These expenses submitted by Mayor Davis as official events and purchases on behalf of the city are a betrayal of the public's trust, and I intend to pursue the recovery of this money to the fullest extent of the law," Pickering said in a news release. "Clothing purchases, family counseling and personal meals and entertainment are in no way authorized expenses for the city and should not be paid for on the taxpayers' dime."
Pickering and Davis are both Republicans.
Pickering said his office examined spending records from July 2009 until April 2011. He said Davis billed for things such as a personal trip to Key West, Fla. In July 2010, Davis traveled to an Arizona clinic for stress and anger management counseling, and Pickering says the city paid thousands.
Davis served in the state House before he was elected mayor of Southaven, a suburb of Memphis, Tenn. He ran unsuccessfully for north Mississippi's 1st District congressional seat in 2008. As a legislator and a congressional candidate, he talked frequently about being a fiscal conservative.
Southaven's 2010 population was 48,982. It has grown rapidly in the past decade and is now Mississippi's third-largest city, after Jackson and Gulfport.
Pickering said Davis spent $34,201at Psychological Counseling Services, Ltd. in Scottsdale, Ariz., in June and July 2010 for non-work related treatment for Davis and his family. Pickering said investigators found $4,428 of that was charged to a city credit card for travel expenses, and the city paid $20,518 to the counseling center. Remaining expenses were charged to Davis' personal credit card, and the city made the payments, the auditor said.
The auditor's office said the demand includes $153,589 for expenses, $16,822 for interest and $13,571 for investigative costs. Davis repaid $13,200 this past April for part of the expenses for his wife's time at Psychological Counseling Services, Pickering said.
Davis said Wednesday that he and his wife divorced earlier this year. He also said the stress counseling was related to his job, not his marriage.
"It's not uncommon for a city to pay public safety employees on up to the mayor for expenses like that," Davis said.
Some of the expenses covered by the demand are for the mayor's office and some are for other city employees, Davis said.
Davis said the demand from the auditor's office includes penalties and interest. A breakdown of that information was not immediately available.