State revenue down by 28.3% last month
Pandemic, tax extension among factors
Arkansas’ general-revenue tax collections in April plummeted by $270.9 million — or 28.3% — from the same month a year ago to $687.8 million, but exceeded the state’s forecast, which was revised because of the economic impact of the coronavirus pandemic, according to a report released Monday.
April typically is the month in which the state collects the largest amount of general revenue because the deadline for filing and paying individual income taxes is April 15.
But Gov. Asa Hutchinson extended these state deadlines this year to July 15 to coincide with the federal government’s extension of its income tax deadlines, because of the pandemic.
Individual income and sales and use taxes are state government’s two largest sources of general revenue.
Just a year ago, the April collection set a record — $958.8 million — according to Whitney McLaughlin, a tax analyst for the state Department of Finance and Administration.
This year, the state collected more in individual and corporate income taxes than projected for April under its forecast revised March 23. The state income tax deadline change didn’t apply to corporate income taxes.
That’s why total general-revenue collections exceeded the forecast for April by $103.8 million, or 17.8%, finance department officials said Monday.
“It was difficult trying to determine what behaviors is going to be in this new environment and so we believe it has taken a little longer for it all to start being seen,” said Larry Walther, secretary of the finance department.
“A lot of what we collect in April was actually from March activity, so we will expect [the May report’s] numbers that will be more indicative of what the economy has turned into from covid-19 virus,” he said.
The extension of the state’s individual income tax filing and payment deadlines — coupled with an expected economic slowdown from covid-19 — led the finance
department on March 23 to cut the projection for general-revenue receipts in fiscal 2020 from $7.05 billion to $6.69 billion and the net general-revenue budget by $353.1 million to $5.38 billion. Fiscal 2020 ends June 30; the new income tax deadline falls in fiscal 2021.
In a March 26-28 special session, the Legislature authorized the creation of a covid-19 rainy-day fund with $173 million in surplus funds to fill state budget holes and cover unexpected needs tied to the coronavirus.
NET REVENUE FIGURES
Tax refunds and some special government expenditures come off the top of the total general revenue, leaving a net amount that state agencies are allowed to spend.
Net revenue in April fell by $213.8 million, or 28.5%, from the same month a year ago to $537.3 million, but exceeded the latest forecast by $177.7 million, or 49.4%.
Walther noted that individual income tax refunds were lower than projected last month, which added to net general revenue. Individual income tax refunds dropped by $51 million, or 37.1%, from a year ago to $86.6 million and fell $75.7 million, or 46.7%, below forecast.
April is the 10th month of fiscal 2020. In that 10-month period, total general revenue dropped by $114.8 million, or 1.9%, to $5.78 billion compared with the same period in fiscal 2019, but exceeded the latest forecast by $130.2 million, or 2.3%.
So far in fiscal 2020, net revenue has decreased by $92.9 million, or 1.9%, to $4.79 billion from the same period in fiscal 2019 but exceeded the forecast by $206.9, or 4.5%.
According to the finance department, April’s general revenue included:
■ A $235.2 million, or 39.1%, fall in individual income tax collections from a year ago to $366.4 million, but these collections exceeded the revised forecast by $80.4 million, or 28.1%.
Withholdings is the largest category of individual income tax collections.
Withholdings dropped by $33.3 million from a year ago to $274.7 million, but exceeded the forecast by $37.9 million.
There was one fewer Friday payday in April compared with a year ago, “so that was just another factor thrown in there,” said John Shelnutt, the state’s chief economic forecaster.
Collections from individual income tax returns and extensions fell by $192.5 million from a year ago to $45.2 million, but that exceeded the forecast by $45.2 million.
Since the state moved its deadline for individual income tax filings and payments, “we assumed nobody would file,” Walther said. “Forty-five million dollars came in from that, so that was unexpected.”
Collections from estimated individual income tax payments dropped by $9.4 million from a year ago to $46.4 million and fell $2.8 million short of the forecast.
■ A $5.5 million, or 2.8%, drop in sales and use tax collections from a year ago to $194.5 million that fell $3.6 million, or 1.8%, below forecast. These collections reflect collections in April based on consumers’ purchases in March.
The retail sales collections increased by 4.5% in April over a year ago because “we got the benefits of stocking up [by] retailers,” Shelnutt said.
But “accommodation and food services, which is restaurants, [was] down 28%,” he said. “Motor vehicle portion of sales tax [was] down 18.6%, so there was offsetting.”
■ A $23.2 million, or 19.1%, drop in corporate income tax collections from a year ago to $98.6 million, but the collections exceeded the forecast by $23.9 million, or 32%.
“We had a very good collection last year and we thought it would come down off of that,” said Shelnutt.
But he said the corporate income tax collections exceeded the forecast in April “because of past activities being reported now in corporate payments, so it is a look at the past helping us out now.”
■ A $5.2 million, or 69.6%, drop in casino gaming revenues
from a year ago to $2.3 million that exceeded the forecast by about $200,000, or 7.2%.
The drop is largely because Oaklawn Racing Casino Resort in Hot Springs and Southland Casino Racing in West Memphis are paying a lower tax rate under constitutional Amendment 100 approved by voters in November 2018.
Amendment 100 allows Oaklawn and Southland to operate full-fledged casinos and authorizes new casinos in Jefferson and Pope counties.
Oaklawn, Southland and the Saracen Casino Annex in Pine Bluff — located across the street from the Saracen Casino Resort under construction — have been closed since midMarch and the casino taxes remitted to the state in April are based on gambling in March. No casino has been authorized yet in Pope County by the Arkansas Racing Commission.
During the first 10 months of fiscal 2020, casino and gaming revenue totaled $31.2 million, a $26.1 million, or 45.6%, decline from a year ago, but about $300,000, or 0.8%, above forecast.
Projected casino and gaming revenue in fiscal 2020 totals $37.1 million, but that includes $5.7 million in electronic games of skill tax collected in July 2019, which does not count toward the $31.2 million cap that general revenue has for casino taxes, McLaughlin said.
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, a restricted reserve fund or other sources.
The money is part of a plan to raise more money for highways and roads, which includes a gas and diesel tax increase and increases in registration fees for electric and hybrid vehicles that became effective Oct. 1, 2019.
In last month’s 17-day fiscal session, the Legislature enacted a $5.89 billion general-revenue budget for fiscal 2021.
The latest general-revenue forecast would provide $5.68 billion for that budget and leave $212.2 million unfunded. On April 2, the finance department cut the fiscal 2021 forecast for net general revenue available to state agencies by $205.9 million to $5.68 billion, citing an expected recession from the pandemic.
In comparison, the general-revenue budget totaled $5.62 billion in fiscal 2019, while the fiscal 2020 budget totals $5.38 billion after the March 23 cut.