State’s revenue dips but exceeds forecast
Arkansas’ general revenue collections in November slipped by $6.1 million, or 1%, compared with a year ago to $581.2 million, but beat the state’s latest forecast by $16.5 million, or 2.9%.
The state’s individual income tax collections dipped in November from the same month a year ago largely because the month had one fewer Friday payday than a year ago, while the state’s sales and use tax collections surged over a year ago, said John Shelnutt, the state’s chief economic forecaster.
November’s general revenue tax collections show high growth in the state’s economy, probably influenced by inflation, he said.
Collections of individual income and sales and use taxes both exceeded the state’s forecast in November, the state Department of Finance and Administration said Friday in its monthly revenue report. The two revenue sources are state government’s two largest sources of state general revenue.
The state’s record general revenue collections for November continue to be the $587.2 million collected in November 2021, said Whitney McLaughlin, a tax analyst for the finance department.
Tax refunds and some special government expenditures are taken off the top of total general revenue collections, leaving a net amount the state agencies are allowed to spend up to the amount authorized by the state’s Revenue Stabilization Act.
The state’s net in Novem
ber dropped by $27.8 million, or 5.6%, compared with a year ago to $472.1 million, but exceeded the state’s forecast by $12.3 million, or 2.7%.
November is the fifth month of fiscal 2023, which started July 1 and ends June 30, 2023.
During the first five months of fiscal 2023, the state’s total general revenue increased by $195.6 million, or 6.2% over the same period in fiscal 2022 to $3.37 billion and exceeded the state’s latest forecast by $16.5 million, or 0.5%.
So far in fiscal 2023, the state’s net general revenue increased by $154.2 million, or 5.6%, over the same period in fiscal 2022 to $2.92 billion and outdistanced the state’s revised forecast by $12.3 million, or 0.4%.
Finance department Secretary Larry Walther said, “Sales tax collection growth remained elevated in November and year-to-date over the first five months of fiscal year 2023.
“State general revenue does not tax groceries, so the growth is coming from other consumption,” he said in a written statement. “Growth is balanced among the largest revenue categories when adjusted for one-time factors and income tax cuts.”
FISCAL YEAR 2023 SURPLUS
In the fiscal session earlier this year, the General Assembly and departing Gov. Asa Hutchinson authorized a general revenue budget of $6.02 billion for fiscal 2023 — up by $175.1 million from fiscal 2022’s general revenue budget with most of the increases for the public schools and human service programs.
The finance department’s latest forecast, issued Nov. 10, projects a general revenue surplus of $598.1 million at the end of fiscal year 2023.
Shelnutt said the state’s tax collections are on track to produce that general revenue surplus by June 30.
The department’s previous forecast on May 18 projected a $914 million surplus at the end of fiscal 2023 on June 30. That was before the Legislature and Hutchinson in the Aug. 9-11 special session enacted a four-pronged tax cut package that the finance department projected would reduce state general revenue by $500.1 million in fiscal 2023, by $166.6 million more in fiscal 2024, by $69.5 million more in fiscal 2025, by $18.4 million more in fiscal 2026 and by $8.4 million more in fiscal 2027.
The tax cut package accelerated the reduction of the state’s top individual income tax rate from 5.5% to 4.9%, retroactive to Jan. 1, 2022, and will accelerate the state’s top corporate income tax rate from 5.9% to 5.3%, effective Jan. 1, 2023.
The package also grants a temporary, nonrefundable income tax credit of $150 for individual taxpayers with net income up to $87,000 and of $300 for married taxpayers filing jointly with net income up to $174,000, and adopts a federal depreciation schedule for businesses.
Finance department spokesman Scott Hardin said taxpayers will keep an additional $295 million in their pockets within a one-year period as a result of the top rate acceleration.
“As employers have implemented withholding changes, paychecks have increased and the benefit continues as taxpayers file income taxes in early 2023,” he said.
For fiscal 2024, Hutchinson last month proposed a $314 million increase in the state’s general revenue budget to $6.33 billion in the next fiscal year, with $200 million of increased general revenue earmarked for the public schools to help boost teachers’ salaries.
The Republican governor said his proposed general revenue budget for fiscal 2024, starting July 1, 2023, would represent a 5.2% increase over the current budget of $6.02 billion, leaving a projected general revenue surplus of $254.9 million at the end of fiscal 2024. Considering that inflation is more than 8% this year, limiting the growth of the state’s general revenue budget to 5.2% reflects conservative budgeting in these challenging times, he said last month.
Last month, Governor-elect Sarah Huckabee Sanders spokesman Judd Deere said “Governor-elect Sanders looks forward to continued conversations with the governor and her legislative partners during the transition as she works to develop a budget that makes government lean and efficient, cuts taxes and prioritizes the promises she made to Arkansans to make our state one of the best to live, work, and raise a family.”
NOVEMBER DETAILS
According to the finance department, November’s general revenue included:
■ A $25.3 million, or 9.4%, decline in individual income tax collections from a year ago to $245.5 million, which outdistanced the state’s Nov. 10 forecast by $1.1 million, or 0.5%.
The largest category of individual income tax collections is withholdings.
Withholding declined by $33.9 million, or 13.4%, from a year ago to $219.8 million, but fell short of the state’s forecast by $10.2 million. Shelnutt said that’s largely due to November having one fewer Friday payday compared to a year ago, but it’s also a result of withholding rate changes spawned by the state’s acceleration of income tax cuts.
Collections from returns and extensions increased by $8.1 million over a year ago to $19.2 million, and exceeded the state’s forecast by $9.9 million.
Collections from estimated payments increased by about $500,000 over a year ago to $6.5 million and outdistanced the state’s forecast by $1.4 million.
■ A $17.5 million, or 7%, increase in sales and use tax payments from a year ago to $268.9 million, beating the state’s forecast by $11.6 million, or 4.5%.
Most major reporting sectors of sales tax displayed high growth over the prior year, reflecting continuing economic expansion in many sectors.
Shelnutt said the sales taxes collections in November showed large gains in restaurant sales, other services and manufacturing, construction, utilities and wholesale sectors. Motor vehicle sales tax collections declined by about $700,000, or 2.6%, from a year ago, he said.
■ A $2 million, or 25%, increase in corporate income tax collections from a year ago to $10 million, exceeding the state’s forecast by $3.2 million, or 48.2%.