State’s revenue misses forecast
Collections drop $10.9M from ’18
State general revenue collections in July dipped by $10.9 million from the same month a year ago to $520.9 million, falling $1.7 million below the state’s forecast.
Collections of the state’s two largest sources of general revenue — individual income taxes and sales and use taxes — both dropped slightly last month compared with the same month a year ago, the state Department of Finance and Administration reported Friday in its monthly revenue report.
The record for July’s general revenue collections remains $531.8 million taken in 2018, said Whitney McLaughlin, a tax analyst for the department.
Tax refunds and some special government expenditures come off the top of total general revenue, leaving an amount that state agencies are allowed to spend.
The net in July declined by $6.5 million or 1.4% from a year ago to $462.8 million, beating the state’s forecast by $18,000, said department Director Larry Walther.
July is the first month of fiscal 2020, which ends June 30, 2020.
The governor wasn’t too worried about the revenue report.
Gov. Asa Hutchinson said that after a strong close to fiscal 2019, which ended June 30, “we are pleased to launch a new fiscal year precisely on target to our projections.
“As the first month of a new year can be volatile, we consider this a solid start in terms of revenue. Throughout the fall, we will gain additional perspective on our state budget and our economy,” the Republican governor said in a written statement.
In fiscal 2019, the state reported a $295.4 million general revenue surplus that ranks as Arkansas’ fifth-largest during the past 30 years, according to state records. The largest surplus is $409.3 million in fiscal 2007.
For fiscal 2020, the general revenue budget totals $5.75 billion — an increase of $124.1 million over fiscal 2019’s budget — with most of the increase targeted for human services and education.
Two weeks ago, the state reported that Arkansas’ unemployment rate dropped to 3.5% in June from 3.6% in May, setting a record low as the number of Arkansans working is continuing to reach new highs.
While the unemployment rate has been touted as a record, it’s not the first time Arkansas’ unemployment rate has been reported as 3.5%. In September and October, the unemployment rate was initially reported at 3.5%, but the figure was later revised upward after all the available data were collected.
According to the finance department, the state’s general revenue in July included:
■ A $3.7 million, or 1.6%, decrease in individual income tax collections from a year ago to $232.3 million, which exceeded the state’s forecast by $1.8 million or 0.8%.
Withholdings is the largest category of individual income tax collections. They declined by $8.1 million from a year ago to $215.6 million, which fell $2.2 million behind the forecast.
Individual income tax collections last month dropped from a year ago largely because July had one less
Friday payday than in the same month a year ago, said
John Shelnutt, the state’s chief economic forecaster.
■ A $3.7 million or 1.8% dip in sales and use tax collections compared with July 2018, to $205.8 million, which fell $6.7 million or 3.2% below the state’s forecast.
Sales tax collections from auto sales and restaurants increased from a year ago, but sales tax collections from the retail sector, utilities and information services declined from a year ago, Shelnutt said.
The effect of Act 822 of 2019 that requires Internet retailers — defined as outof-state sellers without a physical presence in the state — to collect and remit sales taxes on in-state purchases won’t be reflected in sales tax collections until the report for August is released in early September. Those retailers will remit their taxes to the state in August based on their sales to consumers in July, Shelnutt said. State officials project the law will raise $32.4 million more in overall revenue, including $21.7 million more in general revenue, for the state in fiscal 2020.
■ A $5.6 million or 18.3% decline in corporate income tax collections from a year ago to $25.1 million, which dropped $800,000, or 3.1%, below forecast. Corporate income taxes are often a volatile source of general revenue tax collections.
■ A $1.9 million, or 10.6%, increase in tobacco tax collections over July a year ago to $20.2 million, which exceeded the forecast by $3.3 million.
Monthly changes in tobacco tax collections can be attributed to uneven patterns of stamp sales to wholesale purchasers, according to the finance department.
Fiscal 2020 is the first full fiscal year in which the state’s sales tax on groceries was reduced from 1.5% to 0.125%, effective Jan. 1, 2019. State officials have projected that revenue will be reduced by about $60 million a year.
This is also the first full fiscal year for reduced individual income tax rates for people who make below $21,000 a year in taxable income. The cut became effective Jan. 1. State officials have projected that it will cut revenue by about $50 million a year. The Legislature enacted this plan in 2017.
In addition, the first stage of the governor’s plan to reduce the top individual income tax rate over two years takes effect Jan. 1, 2020 — halfway through fiscal 2020.
Act 182 of 2019 cuts the top rate of 6.9% to 6.6% on Jan. 1, 2020, and then to 5.9%, effective Jan. 1, 2021. State officials project it will reduce revenue by $25.6 million in fiscal 2020, $48.5 million in fiscal 2021 and $22.9 million more in fiscal 2022.
Those aren’t the only two income groups receiving a tax break. In 2015, the Legislature enacted the governor’s plan to cut individual income tax rates for people who make between $21,000 and $75,000 a year in taxable income. That plan is projected to cut revenue by about $100 million a year.