$653.7M state revenue is a record for January
But income tax collections lag forecast
Bolstered by a surge in sales and use tax collections, state general revenue in January increased by $31.1 million over the same month a year ago to $653.7 million.
However, last month’s general revenue collections fell short of the state’s forecast by $1.5 million, or 0.2%, because individual income tax collections lagged the projection, according to the Department of Finance and Administration’s revenue report released Tuesday.
January’s total general revenue set a record for the month, exceeding the previous record of $648.2 million in 2018, said Whitney McLaughlin, a tax analyst for the finance department.
Individual income and sales and use taxes are the state’s two largest sources of general revenue.
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.
In January, the net increased by $40.6 million, or 7.3%, over year-ago figures to $594.6 million and exceeded the forecast by $1.1 million.
January is the seventh month of fiscal 2020, which started July 1.
So far in fiscal 2020, total general revenue collections increased by $143 million, or 3.7%, over the same period in fiscal 2019 to $4 billion and outdistanced the forecast by $80.6 million, or 2%, according to the finance department.
Asa Hutchinson said Tuesday that the monthly report continues to be good news, with net available revenue above forecast for seven-consecutive months.
“After seven months we have a surplus of $94 million and this provides a much needed cushion as we reduce our taxpayer withholding tables to reflect recent years’ tax cuts,” the Republican governor said in a written statement.
“I expect the surplus to diminish in coming months because of the change in the withholding tables but we remain in a strong economic position in the state,” Hutchinson said.
For the first time in five years, state officials are adjusting the withholding tables for employers, effective March 1. The adjustments mean workers will get more in their paychecks because less state income tax is taken, officials said, but they could lead to some lower refunds next year unless taxpayers increase their withholdings.
So far in fiscal 2020, total general revenue collections increased by $143 million, or 3.7%, over the same period in fiscal 2019 to $4 billion and outdistanced the forecast by $80.6 million, or 2%, according to the finance department.
During the first seven months of fiscal 2020, net general revenue increased by $149.7 million, or 4.4%, over the same period in fiscal 2019 to $3.5 billion, and exceeded the forecast by $94.2 million.
The general revenue budget for fiscal 2020 totals $5.75 billion, an increase of $124.1 million from fiscal 2019’s budget, with most of the increase targeted for human services and education programs. The Republican-controlled Legislature and the governor enacted the budget during last year’s regular session.
Among tax measures, legislators approved Act 182 of 2019 to enact Hutchinson’s plan to phase in cuts in the top individual tax rate. State officials project it will cut general revenue by $25.6 million this fiscal year and ultimately by $97 million a year.
In 2015, the Legislature enacted the governor’s plan to cut middle-income tax rates and in 2017 did the same for low-income taxpayers. State officials projected the former plan would reduce revenue by about $100 million a year and the latter plan by about $50 million a year.
In the 2019 regular session, lawmakers also enacted a measure to require out-of-state internet retailers to collect and remit sales tax on in-state purchases; a measure to phase in future cuts in corporate income tax rates; and a law to raise road funds by imposing a wholesale sales tax on gas and diesel fuel and raising registration fees on electric and hybrid vehicles.
On March 4, state officials are to unveil the governor’s proposed general revenue budget for fiscal 2021, which starts July 1. The budget will be considered in the fiscal legislative session starting April 8.
JANUARY DETAILS
According to the finance department, January’s general revenue included:
■ A $16.6 million, or 8%, increase in sales and use tax collections over the same month a year ago to $224.4 million, exceeding projections by $5.8 million.
The retail component of sales and use tax collections was “very weak” in December but then increased by 13.7% in January, and “you put the two together, it was a good holiday shopping season,” said John Shelnutt, the state’s chief economic forecaster.
“The retail [collections] surged and some of that is that Cyber Monday effect,” he said. Cyber Monday was Dec.
2. Sale and use tax collections paid by retailers to the state in January are based on consumers’ purchases in December.
The state continues each month to beat the estimate for sale and use tax receipts by out-of-state internet retailers, Shelnutt said.
■ A $16.8 million, or 4.9%, increase in individual income tax collections from yearago figures to $359 million that fell $15.4 million below forecast.
Withholdings are the largest category of individual income taxes. They increased last month by $7.1 million over the same month a year ago to $262.7 million, but fell short of the forecast by $4.1 million.
Estimated payments increased last month by $8 million from year-ago figures to $86.5 million, but fell $12.6 million short of forecast.
Shelnutt said estimated individual income tax payments fell short of forecast as a result of “taxpayer strategy … still playing out from the last two years,” linked to the federal tax overhaul from December 2017.
■ A $6.5 million, or 20.4%, increase in corporate tax collections over January a year ago to $38.6 million, exceeding forecast by $11.3 million, or 41.4%. Gains in estimated corporate tax payments accounted for most of the gain.
“I think corporations are continuing to do well on earnings, and that’s reflected in these estimates,” Shelnutt said.
CASINOS AND HIGHWAYS
Casino gambling revenue in January dropped by $2.9 million, or 50.4%, from January 2019 to $2.9 million, but exceeded the forecast by about $500,000.
December is the sixth month in which Oaklawn Racing Casino Resort in Hot Springs and Southland CasiGov. no Racing in West Memphis are paying a lower state tax rate under Amendment 100 to the Arkansas Constitution, approved by voters in November 2018.
Amendment 100 allows Oaklawn and Southland to operate as full-fledged casinos and authorizes new casinos in Jefferson and Pope counties. The Saracen Casino Annex, across the street from the Saracen Casino Resort under construction in Pine Bluff, started limited operations in late September. No casino has been licensed in Pope County.
State officials expect to take in $31.2 million in fiscal 2020 — down from $69.7 million in fiscal 2019 — but they also project that this tax revenue will grow to $55.9 million in fiscal 2021 and steadily increase to $81.8 million by fiscal 2028.
During the first seven months of fiscal 2020, casino revenue declined by $16.4 million, or 42.8%, to $22 million, compared with $38.4 million in the same period in fiscal 2019, but exceeded the state’s forecast.
Under Act 416 of 2019, casino-related revenue above $31.2 million will be diverted to the state Department of Transportation, which will be guaranteed a minimum $35 million a year from casino revenue, a restricted reserve fund and other sources. Act 416 also imposed the wholesale fuel taxes and higher registration fees on electric and hybrid vehicles.
These taxes and fees are considered special revenue. These taxes, fees and reallocations of revenue are projected to raise about $95 million more for state roads and about $13 million a year apiece for cities and counties.