May revenue collections show Arkansas economy expanding despite one-time tax settlement

A one-time multimillion dollar court settlement over a sales tax refund issue left monthly tax collections short of expectations with only one month left for Arkansas to close the books on fiscal 2016, state revenue officials said Thursday.

Still, Department of Finance and Administration economist John Shelnutt, said revenue collections are healthy with only one month left in fiscal 2016 and Arkansas’ economy is continuing to expand.

“The results in May reflect the normal month-to-month volatility that we normally see in collections, but we are continuing to see growth in the state economy,” said Shelnutt, the state’s director of Economy Analysis & Tax Research.

Net available general revenue of $338.2 million was up 0.7% compared to a year ago, but below forecast by $5.2 million, or 1.5%.

Shelnutt said the results include an $8.2 million refund related to a court settlement over sales and use taxes. According to John Theis, the assistant policy and legal commissioner for DFA’s revenue division, the sales tax refund settlement was related to a federal court-approved multistate deal with AT&T involving wireless data overages on the bill of the phone giant’s customers. Information on the settlement on AT&T’s website shows that the U.S. District Court of, Northern District of Illinois, Eastern Division granted a motion for final approval on June 2, 2011. Since then several states, including Arkansas, have been approved for distribution.

“This was the Arkansas offshoot of that settlement,” Theis said. “Ultimately, we negotiated a settlement with AT&T that we thought was fair to Arkansas taxpayers.”

Meanwhile, the May revenue report is the first look at state revenue collections after Arkansas lawmakers completed the third and final special session. Before the called sessions began, Gov. Asa Hutchinson and top legislative leaders sought to increase the fiscal 2017 budget by nearly $143 million to $5.33 billion for the upcoming fiscal year.

Just over a week ago, Gov. Asa Hutchinson signed a five-year highway bill into law Monday hours after it passed the Senate and said any longer term plan should come as a result of a voter-initiated act. The bill will raise about $50 million a year over the next five years in order to make the state eligible for $200 million a year in federal matching funds.

The bill would create the Arkansas Highway Improvement Plan of 2016, funded by an Arkansas Highway Transfer Fund. For 2017, the state would make a one-time transfer of $40 million in rainy day funds to the Highway Transfer Fund. In the future, the Highway Transfer Fund would be financed by deposits of 25% of state surplus funds. A Securities Reserve Fund would generate $1.5 million for the Highway Transfer Fund in fiscal year 2017 and $20 million in the following years.

With only one month to go in fiscal 2016, Arkansas’ year-to-date net available general revenue totals $4.8 billion, which is $162.6 million or 3.5% above year ago levels. That leaves net available revenue of $104.8 million above forecast.

MAY REVENUE
May gross general revenue collections totaled $432.9 million, an increase of $5.3 million or 1.2% above last year, but below forecast by $7.6 million, or 1.7%.

May sales tax collections totaled $171.6 million, down $17 million, or 1.4%, compared to last year. Collections were below monthly forecast levels by $1.6 million or 9%. The collection results largely reflect taxable sales activity in May, DFA officials said.

May individual income tax collections total $217 million. Collections increased by $18.2 million, or 9.1% compared to last year.  With respect to the forecast, collections were $9.8 million or 4.7% above expected levels as gains from withholding tax on payrolls accounted for most of the increase from year ago levels and forecast.

May individual income tax collections came in at $217 million, an increase of $18.2 million or 9.1% compared to last year. Collection were $9.8 million or 4.7% above expected levels. Corporate income tax collections rose slightly to $8.9 million, an increase of $200,000 from year ago and fractionally above forecast.

OTHER TAX REVENUE SOURCES
Alcoholic beverage
July-May. 2016: $49.7 million
July-May 2015: $47.9 million

Games of skill
July-May 2016: $51.1 million
July-May 2015: $42.6 million

Tobacco
July-May 2016: $203.7 million
July-May 2015: $199.6 million

Insurance
July-May 2016: $64 million
July-May 2015: $69 million