Revenue gains 3.2% over ’23

$21.3 million increase in March exceeds state’s forecasts

Bolstered by increased sales and use and individual income tax collections, Arkansas state government’s general revenue collections in March increased by $21.3 million, or 3.2%, over a year ago, to $688.8 million.

March’s collections beat the state’s general revenue forecast by $60.1 million, or 9.6%, the state Department of Finance and Administration reported Tuesday.

State government’s individual income tax and sales and use tax collections are the two largest sources of general revenue.

The largest amount of general revenue collected in the month of March is the $691.5 million collected in 2022, said Whitney McLaughlin, a tax analyst for the finance department.

“March 2024 net available and gross revenues exceeded forecast and March 2023 results,” state Department of Finance and Administration Secretary Jim Hudson said in a written statement.

“Sales tax collection increased by more than 4% over last year, and individual withholding tax revenue increased by over 7% compared to March 2023,” he said. “We remain optimistic concerning the Arkansas economy and our revenue forecast as we move into the last quarter of [fiscal year] 2024.”

Fiscal year 2024 started July 1, 2023, and ends June 30, 2024.

Tax refunds and some special government expenditures are taken off the top of total general revenue collections, leaving a net amount that state agencies are allowed to spend up to the maximum authorized by the state’s Revenue Stabilization Act. That act distributes general revenue to state-supported programs such as public schools, the state’s universities and colleges, human service programs and prisons and other corrections programs.

The state’s net general revenue in March increased by $34.4 million, or 8.2%, over a year ago, to $452 million, and exceeded the state’s Feb. 1 forecast by $67.2 million, or 17.5%.

Taxpayers in Arkansas are required to file their state individual income tax returns

and pay the state’s individual income taxes by April 15.

Since filing formally opened Jan. 29, the state Department of Finance and Administration has processed a total 798,223 individual income tax returns, said department spokesman Scott Hardin. At the same time last year, the department had processed 780,997 returns, he said.

From the 798,223 returns processed this year, a total of 525,579 refunds have been issued, he said. At the same time last year, 502,784 refunds had been issued, he said.

In 2023, a total of 1.4 million individual income tax returns were filed, Hardin said.

March is the ninth month of fiscal year 2024.

During the first nine months of fiscal 2024, the state’s total general revenue collections have declined by $91.7 million, or 1.5%, from the same period in fiscal 2023, to $6.1 billion, but exceeded the state’s latest forecast by $85.4 million, or 1.4%.

The state’s general revenue collections have slipped because of the state’s individual and corporate income tax cuts and slowing general revenue collections in fiscal year 2024, officials reported.

During the first nine months of fiscal 2024, the state’s net general revenue have dropped by $288.7 million, or 5.6%, from the same period in fiscal 2024, to $4.8 billion, but beat the state’s latest forecast by $77.8 million, or 1.6%.

During the 2023 regular session, the Republican-controlled General Assembly and Gov. Sarah Huckabee Sanders authorized a $177.7 million increase in the state’s general revenue budget to $6.2 billion in fiscal 2024, with most of the increase allocated to education and corrections programs.

The finance department’s latest general revenue forecast, released Feb. 1, projects a general revenue surplus of $240.5 million at the end of fiscal year 2024. In its previous general revenue forecast May 17, the finance department initially projected a $423.3 million general revenue surplus at the end of fiscal 2024. After income tax cuts enacted by the legislature and Sanders during the Sept. 11-14 special session, finance department officials said at that time the projected surplus was reduced to about $174 million in fiscal 2024.

“The major change is the revised forecast takes into account the fiscal impact of the tax cuts,” Hudson said Feb. 1. “[But] we are adding back in a little bit of the over-achievement [in tax collections so far in fiscal 2024].”

Act 6 of the special session cut the state’s top individual income tax rate from 4.7% to 4.4% and the state’s top corporate income tax rate from 5.1% to 4.8%, starting in tax year 2024, according to the finance department.

Cutting the state’s top individual income tax rate from 4.7% to 4.4%, effective Jan. 1, 2024, is projected by the finance department to reduce state general revenue by $75 million in fiscal 2024 and by $150 million in fiscal 2025. Trimming the state’s top corporate income tax rate from 5.1% to 4.8%, effective Jan. 1, 2024, is projected to reduce state general revenue by $17.2 million in fiscal 2024 and by $34.5 million in fiscal 2025.

The finance department has projected the temporary income tax credit will reduce state general revenue by $156.3 million in fiscal 2024.

The Legislature is scheduled to convene in its fiscal session starting April 10 to consider the governor’s proposed general revenue budget for fiscal year 2025.

Sanders has proposed a $109.3 million, or 1.76%, increase to $6.31 billion in the state’s general revenue budget for fiscal year 2025, with a $65.7 million increase to $97.4 million for the state’s Education Freedom Accounts to help students attend private school, parochial school or home school, and a $38.2 million increase to $2.48 billion for the public school fund.

Fiscal year 2025 begins July 1, 2024, and ends June 30, 2025.

The Republican governor’s proposed budget projects a general revenue surplus of $376.6 million in fiscal 2025 if the state’s general revenue meets the Department of Finance and Administration’s latest forecast of $6.68 billion for net general revenue in fiscal 2025.

Last month, legislative leaders said they expect to wait until after the end of the current fiscal year June 30 before considering the possibility of enacting more income tax cuts in a special session later this year or in the 2025 regular session.

MARCH’S DETAILS

According to the finance department, Arkansas’ general revenue collections in March included:

⏹︎ A $26.8 million, or 9.7%, increase in individual income tax collections over the same month a year ago to $302.7 million, which beat the state’s forecast by $37.8 million, or 14.3%.

Individual withholding tax revenue is the largest category of individual income taxes.

Withholdings collections increased by $23.3 million, or 10.4%, over the same month a year ago to $247.7 million and beat the state’s forecast by $16.4 million, or 7.1%. McLaughlin largely attributed the increase in withholding collections to an extra Thursday payday.

Collections from returns and extensions increased by $1 million over a year ago to $45.2 million, which outdistanced the state’s forecast by $14.9 million.

Collections from estimated payments increased by $2.5 million to $9.8 million and exceeded the state’s forecast by $6.5 million.

⏹︎ An $11.9 million, or 4.2%, increase in sales and use tax collections over a year ago to $295.3 million, beating the state’s forecast by $19.9 million, or 7.2%.

Major reporting sectors of sales taxes displayed growth over the prior year.

Retail sector sales tax collections increased by $5.5 million, or 5.1%, over a year ago to $112.3 million, and accommodation and food services sector sales tax collections increased by $1.7 million, or 6.5%, over a year ago to $27.3 million.

But motor vehicle sales tax collections dipped by $7.6 million, or 19.2%, from a year ago to $31.9 million.

⏹︎ Corporate income tax collections decreased by $13 million, or 26.5%, over a year ago to $36 million, which outdistanced the state’s forecast by $5.4 million, or 17.7%.