Rev­enue record set for a July

Tax take rose by $56.4 mil­lion

Northwest Arkansas Democrat-Gazette - - FRONT PAGE - BRIAN FANNEY

Arkansas state gov­ern­ment’s gen­eral-rev­enue tax col­lec­tions nearly hit $525 mil­lion in July, beat­ing ex­pec­ta­tions and set­ting a record for the month.

Gen­eral rev­enue in July — the first month of fis­cal 2018 — in­creased by $56.4 mil­lion over the same month a year ago to $524.1 mil­lion. The pre­vi­ous record was $470.8 mil­lion in July 2014. Com­pared with last July, sales and use taxes as well as in­di­vid­ual and cor­po­rate in­come taxes had in­creased.

Fis­cal 2017, which ended June 30, was a tu­mul­tuous time for state fi­nances. Rev­enue see­sawed above and be­low fore­cast, caus­ing Gov. Asa Hutchinson to trim the $5.49 bil­lion gen­eral-rev­enue bud­get for fis­cal 2018 by $43 mil­lion.

“This re­port is a good start for the year,” Hutchinson said in a state­ment Wed­nes­day. “Our state’s econ­omy is strong, and its mo­men­tum is re­flected in the rev­enue num­bers. From last year’s ex­pe­ri­ence, we re­al­ize the month-to-month re­ports may vary sig­nif­i­cantly, but the state’s eco­nomic trends are all pos­i­tive.”

Larry Walther, direc­tor of the state Depart­ment of Fi­nance and Ad­min­is­tra­tion, said the first month’s re­port of fis­cal 2018 was pos­i­tive, but it was too soon to say if the fore­cast would be changed.

In­come taxes — both in­di­vid­ual and cor­po­rate — were above fore­casts for July. How­ever, sales and use taxes con­tin­ued to lag slightly be­hind ex­pec­ta­tions, even though they in­creased com­pared with the prior year. In­di­vid­ual in­come and sales and use taxes are the two big­gest sources of tax rev­enue in Arkansas.

“Con­sumers are back and con­tribut­ing in line with in­come growth, but it was be­low fore­cast be­cause of mo­tor ve­hi­cle sales,” said John Shel­nutt, the state’s chief eco­nomic fore­caster. “The re­tail por­tion of sales tax is on track again I would say.”

“It’s al­ways great to see gross re­ceipts — what they call sales and use — bump up a lit­tle bit be­cause that is the big­gest part of the econ­omy and as long as peo­ple are do­ing a lit­tle spend­ing, then we can sleep for an­other 30 days,” said Richard Wil­son, as­sis­tant direc­tor of re­search for the Bu­reau of Leg­isla­tive Re­search.

Na­tion­ally, states have re­gained much of their fis­cal ground they lost dur­ing the re­ces­sion, but have not fully re­bounded, ac­cord­ing to a July re­port from the Pew Char­i­ta­ble Trusts.

“The slow pace of tax rev­enue growth has left many with lit­tle or no wig­gle room in their bud­gets. Nine­teen states still col­lect less tax rev­enue than at their re­ces­sion-era peaks, af­ter ad­just­ing for in­fla­tion, and most have a thin­ner fi­nan­cial cush­ion than they did be­fore the last down­turn,” ac­cord­ing to the re­port.

“In ad­di­tion, 16 states’ em­ploy­ment rates still clearly trail 2007 lev­els. De­spite th­ese chal­lenges, per­sonal in­come in all states has bounced back above pre-re­ces­sion fig­ures, though growth has fallen short of his­toric norms.”

In Arkansas, un­em­ploy­ment is at a his­toric low, and tax rev­enue is above pre-re­ces­sion lev­els.

How­ever, in April, Hutchinson an­nounced a $70 mil­lion cut to the $5.33 bil­lion gen­eral-rev­enue bud­get, to $5.26 bil­lion, for fis­cal 2017.

He cited lag­ging sales tax and cor­po­rate in­come tax col­lec­tions and higher-than-ex­pected in­di­vid­ual in­come tax re­funds for the cut. The gov­er­nor said ser­vices wouldn’t be af­fected and em­ploy­ees wouldn’t be laid off.

At the end of the fis­cal year in June — with a $15.7 mil­lion sur­plus — Hutchinson re­stored all but $10 mil­lion of the bud­get cut an­nounced in late April.

The state pro­jected a de­cline of about $100 mil­lion in gen­eral rev­enue in fis­cal 2017 from the 2015 Leg­is­la­ture’s en­act­ment of an in­come tax cut. Hutchinson had pro­posed cut­ting in­di­vid­ual in­come tax rates for Arkansans with tax­able in­comes between $21,000 and $75,000 a year.

Ear­lier this year, the Leg­is­la­ture ap­proved the gov­er­nor’s tax cut plan for those who make less than $21,000, but that doesn’t go into ef­fect un­til Jan. 1, 2019.

For this fis­cal year, the Leg­is­la­ture and gov­er­nor passed a $5.496 bil­lion gen­eral-rev­enue bud­get, but the gov­er­nor cut bud­gets by $43 mil­lion af­ter the Depart­ment of Fi­nance and Ad­min­is­tra­tion cut its tax rev­enue fore­cast in May.

Walther said the depart­ment would take an­other look at its fore­cast in late Novem­ber and early De­cem­ber.

Ac­cord­ing to the fi­nance depart­ment, July’s gross gen­eral rev­enue came in 2.2 per­cent — or $11.3 mil­lion — above fore­cast.

It in­cluded:

■ A $29.5 mil­lion, or 14 per­cent, in­crease in in­di­vid­ual in­come taxes over the same month a year ago to $240.1 mil­lion, which fell $7.9 mil­lion, or 3.4 per­cent, above fore­cast. This July car­ried an ad­di­tional pay­day, which ex­plained the large in­crease rel­a­tive to last year, of­fi­cials said.

Pay­roll with­hold­ing tax grew by 15.8 per­cent year over year due in part to pay­day tim­ing dif­fer­ences, ac­cord­ing to the re­port.

“Part of the growth is at­trib­ut­able to pay­day tim­ing dif­fer­ences, which means that dis­ap­pears at some point later,” Wil­son said. “It’s nice to have a $10 mil­lion sur­plus af­ter one month, but I imag­ine at some time in the fu­ture that partly dis­ap­pears.”

■ A $6.5 mil­lion, or 3.4 per­cent, in­crease in sales and use tax col­lec­tions over the same month a year ago, to $199.6 mil­lion. The monthly col­lec­tion was $1.4 mil­lion, or 0.7 per­cent, be­low fore­cast.

Asked about on­line sales — Ama­zon, the on­line re­tailer, vol­un­tar­ily started col­lect­ing taxes on some prod­ucts in Arkansas in March — Walther said the depart­ment doesn’t track those sales specif­i­cally.

“It’s still an issue na­tion­ally and in Arkansas that there’s a lot of sales that are be­ing trans­acted that are not sub­ject to sales tax,” he said.

Ama­zon cap­tured about 43 per­cent of on­line sales in 2016, ac­cord­ing to Slice In­tel­li­gence, which tracks emailed re­ceipts. How­ever about half of the items sold on the site come from third-party sell­ers, ac­cord­ing to com­pany re­ports, and those items are not be­ing taxed.

An Ama­zon spokesman de­clined to com­ment.

■ A $23.4 mil­lion in­crease in cor­po­rate in­come tax col­lec­tions over the same month a year ago to $30.3 mil­lion, which is $4.8 mil­lion above fore­cast.

Those three cat­e­gories ac­counted for 88 per­cent of the gross gen­eral rev­enue in July.

Net gen­eral rev­enue avail­able to state agen­cies in­creased by $53.8 mil­lion com­pared with year-ago fig­ures to $454.5 mil­lion. Tax re­funds and some spe­cific gov­ern­ment ex­pen­di­tures, such as court-man­dated de­seg­re­ga­tion ex­penses, come off the top of gross gen­eral rev­enue, leav­ing a net amount that agen­cies are al­lowed to spend.

Arkansas Demo­crat-Gazette

SOURCES: Eco­nomic Anal­y­sis and Tax Re­search, Depart­ment of Fi­nance and Ad­min­is­tra­tion

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