State revenue up $25.5M from a year ago to $606.6M

FILE - This May 29, 2015 file photo shows the Arkansas state Capitol building in Little Rock. (AP/Danny Johnston, File)
FILE - This May 29, 2015 file photo shows the Arkansas state Capitol building in Little Rock. (AP/Danny Johnston, File)


Fueled by rising sales and use tax collections, Arkansas’ general revenue collections in November increased by $25.5 million or 4.4% over the same month a year ago to $606.6 million, and beat the state’s forecast by $28.1 million, or 4.9%.

The state’s individual income taxes and sales and use taxes are state government’s two largest sources of general revenue.

Both the state’s sales and use tax and individual income collections in November increased over the same month a year ago and exceeded the state’s forecast for the month, the state Department of Finance and Administration said Monday in its monthly report.

The state’s general revenue collections totaling $606.6 million in November is the largest amount of general revenues collected in the month of November, exceeding the previous high of $587.2 million collected in November 2021, said Whitney McLaughlin, a tax analyst for the finance department.

John Shelnutt, the state’s chief economic forecaster, said November’s general revenue collections overall are “a very strong result.”

The state’s sales and use tax collections increase of $18.3 million, or 6.8%, in November over a year ago “was much higher growth than what was anticipated for in November,” he said. “It is certainly higher than anything that we have got in the monthly forecast going forward in the rest of the fiscal year outlook.”

Shelnutt said sales tax collections could have increased in November more than expected because of “one-time occurrences.

“We don’t know that. We don’t know that this is necessarily a trend,” he said. “We are expecting it to slow down.”

Tax refunds and some special government expenditures are taken off the top of total general revenue collections, leaving a net amount that state agencies are allowed to spend up to the maximum authorized by the state’s Revenue Stabilization Act. The state’s Revenue Stabilization Act distributes general revenue to state-supported programs such as public schools, the state’s universities and colleges, human service programs, and prisons and other corrections programs.

The state’s net general revenues in November increased by $1.3 million, or 0.3%, over the month a year ago to $473.4 million, outdistancing the state’s forecast by $28.3 million, or 6.4%.

In the regular session earlier this year, the General Assembly and Gov. Sarah Huckabee Sanders authorized a $177.7 million increase in the state’s general revenue budget to $6.2 billion in fiscal 2024, with most of the increase allocated to education and corrections programs.

November is the fifth month of fiscal 2024, which started July 1 and ends June 30, 2024.

During the first five months of fiscal 2024, total general revenues declined by $47.7 million, or 1.4%, from the same period in fiscal 2023 to $3.32 billion, but outdistanced the state’s forecast by $176.8 million, or 5.6%.

So far in fiscal 2024, the state’s net general revenues dropped by $164.6 million, or 5.6%, from the same period in fiscal 2023 to $2.76 billion, but beat the state’s forecast by $144.1 million, or 5.5%.

“Our November and fiscal year-to-date revenue results remain above forecast, with sales tax collections in particular showing a healthy Arkansas economy,” Jim Hudson, secretary of the Arkansas Department of Finance and Administration, said in a written statement.

NOVEMBER’S DETAILS

According to the finance department, September’s general revenues included:

— An $18.3 million, or 6.8%, increase in the sales and use tax collections from a year ago to $287.2 million, beating the state’s forecast by $17 million, or 6.3%.

“The gain was broad-based in year-over-year comparisons for consumer and business-related sectors,” Shelnutt said.

The major sales tax collection category of retail trade increased by $7.9 million, or 7.4%, in November over a year ago and motor vehicle sales tax collections increased by $3.9 million, or 14.6%, in November over a year ago, he said.

“Also within sales tax, we saw the end of that drag from utilities that we’ve been been observing over the summer and early fall,” Shelnutt said. “That was no longer the case in November results, so that helped out compared to recent months.”

— A $2 million, or 0.8%, increase in individual income tax collections from a year ago to $247.6 million, exceeding the state’s forecast by $6.5 million, or 2.7%.

Withholding is the largest category of individual income tax revenues.

Individual withholding revenues increased by $3.6 million or 1.7% over a year ago to $223.4 million, but fell $3.4 million short of the state’s forecast. The increase in withholding taxes in November compared to a year ago was pulled down by ongoing income tax rate reductions, Shelnutt said.

Individual income tax collections from returns and extensions dropped by $2.6 million from a year ago to $16.6 million, but exceeded the state’s forecast by $6.3 million.

Individual income tax collections from estimated payments increased by $1 million over a year ago to $7.5 million and beat the state’s forecast by $3.5 million.

— A $2.2 million, or 22.3%, increase in corporate income tax collections from a year ago to $12.2 million and exceeded the state’s forecast by $3.4 million, or 38.6%.

SURPLUS REVENUES

The state’s net general revenues exceeding the state’s forecast by $144.1 million so far in fiscal 2024 is beyond the general revenue surplus already forecast by the state for fiscal 2024.

The finance department is scheduled to update its general revenue forecast Feb. 1, Shelnutt said.

In May, the finance department projected a $423.3 million general revenue surplus at the end of fiscal 2024 on June 30, 2024. State finance department officials said that projected general revenue surplus was cut to about $174 million by the Legislature and Sanders’ income tax cuts enacted during the September 11-14 special session.

During that special session, the Legislature and the Republican governor approved an income tax cut package that trimmed the state’s top individual and corporate income tax rates and created a temporary nonrefundable income tax credit for low-income and middle-income taxpayers.

Act 6 cut the state’s top individual income tax rate from 4.7% to 4.4% and the state’s top corporate income tax rate from 5.1% to 4.8%, starting in tax year 2024, according to the finance department.

Cutting the state’s top individual income tax rate from 4.7% to 4.4%, effective Jan. 1, 2024, is projected by the finance department to reduce state general revenues by $75 million in fiscal 2024 and by $150 million in fiscal 2025, and trimming the state’s top corporate income tax rate from 5.1% to 4.8%, effective Jan. 1, 2024, is projected to reduce state general revenues by $17.2 million in fiscal 2024 and by $34.5 million in fiscal 2025.

The state Department of Finance and Administration has projected the temporary income tax credit will reduce state general revenues by $156.3 million in fiscal 2024, which started July 1 and ends June 30, 2024.

The Legislature will convene in a fiscal session starting April 10 to consider enacting the Revenue Stabilization Act for fiscal 2025, starting July 1, 2024.