Arkansas tax collections flat thanks to broad sales tax weaknesses in August

Revenue collections in the second month of fiscal 2018 came in flat as several major tax categories were below forecast, although U.S. national data show consumer confidence is at a 16-year high.

Net available general revenues in August totaled $405.9 million, $10.2 million or 2.5% below last year’s results and 4.7% below forecast for the month, according to monthly revenue report released Tuesday (Sept. 5) by the state Department of Finance and Administration (DFA).

State budget officials said sales tax collections in August, a key economic benchmark for the state’s economy, were flat compared to the same period a year ago. Also, individual income tax collections were down from the previous year due to tax withholding timing shifts, while the state’s corporate income bounty went through its late summer lull.

Net available general revenue collections in Arkansas now total $860.4 million for the first two months of the new fiscal year, which is $43.6 million or 5.3% below last year’s results. Those results, however, are just above forecast by $9.3 million, or 1.1%. The Arkansas Revenue Stabilization Act mandates a balanced budget to provide appropriate funding levels for all of the state’s major priorities under Gov. Asa Hutchinson’s $5.5 billion budget for fiscal 2018.

In August, year-to-date gross general revenues rose by $51 million, or 5.4% to $992.3 million. That tally is $10.8 million, or 1.1% above the yearly forecast, state budget officials said. Gross general revenues in August $468.2 million, down 1.1% or 5.4 million, and $500,00 or 0.1% below forecast.

August individual income tax collections totaled $205.4 million, down $8.7 million or 1.4% from a year ago. With respect to the forecast, collections were mostly flat as withholding tax from payrolls fell 4.3% from a year ago due to payday timing impacts. Volatile corporate income collections totaled only $5.2 million, a decrease of $300,000 from a year ago, and $700,000 or 12.5% below forecast.

Individual income tax refunds totaled $7.4 million, up $2.1 million or 32.5% above year ago levels and $500,000, or 7.7% above forecast.

‘MIXED MESSAGES’
John Shelnutt, DFA Administrator for Economic Analysis and Tax Research, said sales tax collections in fiscal 2018 were below forecast in July and August.

“The flat performance compared to year-ago August was due to weakness in a number of consumer sectors of sales tax,” Shelnutt told Talk Business & Politics. “Also, for the two-month period, the Motor Vehicle portion of sales tax is flat and following a national trend in car sales.”

The DFA economist also said individual income tax collections were slightly below forecast by $200,000 for the month because of a monthly swing in payday timing compared to a year ago. He said the downswing was in the forecast but not to the full extent of the noted volatility, adding that payroll withholding tax collections are still $7.1 million above forecast.

Shelnutt said two important indicators of the state economy within revenue collections are sales tax and payroll withholding tax.

“We have mixed messages in the short term monthly revenue results as sales tax is weakly positive but below forecast and payroll withholding collections are very good and above forecast,” said the DFA forecaster. “We will need more months to see how consumer spending and incomes reconcile in an otherwise robust state economy. Private sector job growth is running high by historic standards and the state unemployment rate is at record lows with statistically significant divergence from the national rate.”

CARS AND CONSUMER CONFIDENCE
As mentioned by Shelnutt, consumer confidence touched a 16-year high of 122.9 in August, up from a moderate 120 in July, according to The Conference Board. The present situation index, which measures overall consumer sentiment, increased from 145.4 to 151.2, which is nearly even with 151.3 touched in July 2011.

“Consumer confidence increased in August following a moderate improvement in July,” said Lynn Franco, director of Economic Indicators at The Conference Board. “Consumers’ more buoyant assessment of present-day conditions was the primary driver of the boost in confidence, with the Present Situation Index continuing to hover at a 16-year high. Consumers’ short-term expectations were relatively flat, though still optimistic, suggesting that they do not anticipate an acceleration in the pace of economic activity in the months ahead.”

Cox Automotive’ s monthly auto sales report confirmed Shelnutt’s concern that the U.S. car market is slowing down after a seven-year bull run. In its August report, Cox noted that new vehicle sales were down 6% as many of the nation’s top automakers reported fewer sales over the summer.

Cox, the parent company of Kelley Blue Book, noted that commercial fleet sales were down 1%, while rental and government fleets sales fell a whopping 39% and 17%, respectively. Other car industry analysts are also predicting the U.S. car market will see further deterioration as auto sales on the Gulf Coast come to a halt with U.S. insurers facing a mountain of Harvey-related insurance claims.

OTHER TAX REVENUE SOURCES
Alcoholic beverage
July-August 2018: $4.5 million
July-August 2017: $4.4 million

Games of skill
July-August 2018: $5.3 million
July-August 2017: $4.9 million

Tobacco
July-August 2018: $21.8 million
July-August 2017: $19.9 million

Insurance
July-August 2018: $19.3 million
July-August 2017: $19.2 million