State tax revenue collection drops $47 million in June

LITTLE ROCK — The state’s general revenue collection in June — the last month of fiscal 2020 — fell $47.1 million from the same month a year ago to $696 million, yet exceeded the March 23 revised forecast by $77.3 million.

Tax receipts of the last four months of 2020 were affected by the economic downturn resulting from the coronavirus pandemic. The forecast was revised twice — down March 23 but raised Tuesday when revenue came in better than expected.

Individual income tax collection slipped last month compared to June a year ago, while sales and use tax collection surged, but both tax sources beat the March 23 forecast, the state Department of Finance and Administration said Thursday.

Individual income and sales and use taxes are the state’s two largest sources of revenue.

Gov. Asa Hutchinson said Thursday the June revenue report “closes the fiscal year much stronger than anticipated when the forecast was cut by more than $350 million in March.

“Revenues in June were above forecast and year ago levels in our key categories, indicating the resilience of the state’s economy in a tough time period,” the governor said.

“Motor vehicle sales were up 25 percent, which may be attributed to the effectiveness of the federal stimulus payments,” Hutchinson said.

“I expect July to be lower in term of individual income tax collections because many Arkansans paid their taxes early. We will continue to be cautious with the budget in view of the uncertainty of the national economy,” he said. The state changed its deadline for filing individual income taxes from April 15 to July 15.

The record general revenue total for June continues to be the $743 million collected in 2019, said Whitney McLaughlin, a tax analyst for the finance department.

Tax refunds and some special government expenditures come off the top of total general revenue, leaving a net amount state agencies are allowed to spend.

The net in June dropped $62.4 million, or 9.6%, from a year ago to $589.7 million, but exceeded the March 23 forecast by $81.8 million or 16.1%.

Tuesday was the last day of fiscal 2020. That was when the Finance Department again revised its forecast, this time increasing it $240 million to $5.62 billion, based on better-than-expected collection. In the March revision, the department cut the forecast $353.1 million, to $5.38 billion.

In April, the Legislature enacted a $5.89 billion general revenue budget for 2021. The Finance Department’s April 2 forecast will provide $5.68 billion and leave $212.2 million unfunded.

JUNE DETAILS

According to the department, June’s general revenue included:

• A $26 million, or 7.9%, dip in individual income tax collections from a year ago to $302.2 million, which exceeded the March 23 forecast by $32.8 million or 12.2%.

Withholding taxes from payrolls are the largest category of individual income tax collections.

They declined by $27.7 million from a year ago to $214.8 million and exceeded the forecast by $8.9 million. They decreased due to a combination of payroll timing effects from one fewer Thursday than a year ago, withholding formula changes and increased unemployment.

Collections from returns and extensions increased by $16 million over a year ago to $27.7 million and exceeded the forecast by $27.7 million, while collections from estimated payments dropped by $14.3 million from a year ago to $59.7 million and fell short of forecast by $3.8 million.

• An $18.4 million, or 8.8% increase, in sales and use tax collection over a year ago to $227.4, million, exceeding the forecast by $23.5 million, or 11.5%. The sales and use tax largely reflected taxes remitted to the state based on sales in May.

Last month’s retail and motor vehicle sales collection both increased 25% over a year ago, said John Shelnutt, the state’s chief economic forecaster.

• A $9.9 million, or 13.5%, decline in corporate income tax collection to $63.3 million, exceeding the forecast by $9.4 million, or 17.4%.

CASINO TAXES

Casino tax collection in June dropped $5 million, or 80.2%, from a year ago to $1.2 million. That was $2.1 million, or 62.6%, below forecast.

Those casino taxes in June are based May gambling.

Oaklawn Casino Racing Resort in Hot Springs, Southland Casino Racing in West Memphis and the Saracen Casino Annex in Pine Bluff were closed in mid-March because of the pandemic and opened May 18.

During 2020, gambling revenue totaled $32.4 million, a $37.3 million, or 53.5%, drop from 2019 and $4.7 million, or 12.7%, below the forecast.

The drop had been expected because Oaklawn and Southland are paying a lower tax rate under Amendment 100 approved by voters.

Projected casino and gambling revenue in 2020 totaled $37.1 million but that includes $5.7 million in electronic games of skill taxes collected in July 2019, which doesn’t count toward the $31.2 million cap that general revenue has for casino taxes, according to McLaughlin.

Under Act 416 of 2019, casino gambling revenue above $31.2 million will be diverted to the state Department of Transportation, which will be guaranteed a minimum of $35 million a year from casino revenue,.

The full $35 million has been provided through the restricted reserve fund that now has a balance of $4.7 million, said Scott Hardin, spokesman for the Finance Department.

The money is part of a plan to raise more money for highways and roads.

FISCAL 2020

In 2020, total general revenue collection declined $176.2 million, or 2.5%, from 2019 to $6.97 billion and exceeded the March forecast by $272.5 million, or 4.1%.

Individual income tax collection dropped by $101.4 million, or 2.9%, below 2019 to $3.4 billion and exceeded the March forecast by $175.9 million, or 5.4%.

The state collected $93 million in individual income taxes in 2020 that was expected to come in 2021, said Shelnutt.

Individual income tax refunds in 2020 slipped $3.9 million, or 0.8%, below 2019 to $503.6 million and fell $82.7 million, or 14.1%, below forecast, which added to net general revenue results.

Shelnutt said the state expects to pay out about $82 million in income tax refunds in 2021 instead of 2020.

“There is still some unknowns out there,” Shelnutt said. “We don’t know the true tax liability for the tax year ‘19 of these payers who are waiting to file in July. That’s about 18% of returns that haven’t yet happened yet, probably from the high income-tax individuals.”

About 250,000 total returns have yet to be filed, Hardin said.

Sales and use tax collection in 2020 increased $78.7 million, or 3.2%, over 2019 to $2.5 billion, and exceeded the March forecast by $29.1 million, or 1.2%.

Corporate income tax collection in 2020 dropped $88.1 million, or 15.4%, from 2019 to $482.1 million, and exceeded the March 23 forecast by $48.1 million, or 11.1%.

Net general revenue available to state agencies in 2020 dropped $168.1 million, or 2.8%, below 2019 to $5.75 billion, yet exceeded the March 23 forecast by $369.4 million or 6.9%.

Hutchinson said Tuesday the year-end general revenue forecast revision restored $121 million in the public school fund and $42.4 million for higher education and boosted the Medicaid Trust Fund by $72.2 million.

State officials said they expect to have about $97 million reclaimed from state agencies and about $128 million left from the covid-19 rainy day fund to place $225 million in unallocated reserve.

Rep. Lane Jean, R-Magnolia, who is a co-chairman of the Joint Budget Committee, said Thursday he wants the Legislature put some of the unallocated reserve in the state’s long-term reserve fund.

The balance in the longterm reserve fund is $184.9 million, Hardin said.