Sales tax collections bolster state budget coffers heading toward legislative session

Tax collections in Arkansas were relatively flat in December as net available general revenues came in just below forecast six months into the fiscal year, according to the state’s monthly financial report released Wednesday (Jan. 4) by the Department of Finance and Administration (DFA).

Still, an upbeat Gov. Asa Hutchinson said at the State Capitol that he was comfortable with the inflow into state budget coffers going into the upcoming legislation that begins on Jan. 9.

“The big thing to watch, of course, is that we’ve consistently done well in our individual income tax collections and that has been ahead of forecast, but our sales tax collections have lagged,” Hutchinson told Talk Business & Politics. “So, the December report that came in reflected a ‘catchup’ to a certain extent, and that our sales tax collections … met our target goal and exceeded it by a modest amount.

“So, we feel like that got back on target and expect to see continued good numbers in the future, but as we enter the session it gives us a higher level of confidence on where we are and can manage the tax cuts we have outlined,” Hutchinson said.

For December, net available general revenues totaled $467.4 million, $3.2 million or 0.7% above last year and $1.8 million or 0.4% above the estimate. A strong spike in sales and use collections in December’s bolstered the six-month results for the fiscal year that began July 1, 2016, but total net available revenue for the month were mostly offset by a decline in corporate and individual income tax collections, state budget official said. DF&A economist John Shelnutt said the December results also included a $6.2 million deposit from Arkansas Securities Department, which occurs on an annual basis.

“We would have been below forecast without it in December, mainly because of Corporate Tax collections,” he said. “The combined loss in Corporate (gross) collections and elevated Corporate refunds accounted for $11.8 million departure from forecast this month.”

Michael Pakko, chief economist for the University of Arkansas at Little Rock’s Institute for Economic Advancement, said two positive aspects of the monthly report stood out for him.

“First, although individual income tax collections were below forecast in December, they were up 1.4% from the previous year,” Pakko said. “More important, the report mentioned that individual withholding increased 5.1% from the previous year, indicating that estimated tax payments represented the weaker sub-component of individual income tax collections.”

Pakko said the increase in payroll withholding is more closely related to incomes of typical households, “and therefore more closely related to consumer spending power.”

The UALR economist also said the 8.1% increase in sales and use taxes was encouraging.

“Sales tax revenue received in December are roughly associated with sales that took place in December,” he said. “The strong year-over-year gain therefore corresponds to an increase in consumer spending during the first part of the traditional holiday shopping season. That bodes well for holiday retail sales more generally.”

Hutchinson’s proposed $50.5 million plans for the second round of tax cuts in his tenure as governor is part of his balanced budget of nearly $5.5 billion for the biennium.

According to budget details provided by DFA officials, the executive recommendation calls for an upward revenue revision of 2.9% when compared to fiscal 2017 forecast, which would bring in an expected $153.5 million in additional funding for the year. It also calls for a 2.8% increase in general revenues in fiscal year 2018, up $149.1 million, and a 4.9% increase in fiscal year 2019, up $266 million. General revenues are primarily driven by individual and corporate income tax collections, sales taxes and other tax collections by the state.

The governor’s plan also calls for a more robust 4.4% increase in general revenues in fiscal year 2019 of $5.7 billion, up $964.6 million from fiscal year 2018. General revenues are primarily driven by individual and corporate income tax collections, sales taxes and other tax collections by the state, Shelnutt said.

Overall, year-to-date net available general revenues now stands at $2.61 billion, $38.2 million or 1.5% above year ago levels. After six months into the fiscal year, net available revenue is slightly below forecast by $8.8 million or -0.3%.

Gross general revenues in December were $536.9 million, an increase of $7.6 million or 1.4% above last year and $6.5 million or 1.2% above forecast. Monthly, sales and use collections totaled $202.9 million, an increase of $16.5 million or 8.9% above last year.  Collections were above monthly forecast levels by $8.1 million or 4.2%.

December individual income tax collections totaled $233.9 million, up $3.3 million or 1.45% above last year. With respect to the forecast, collections were down $3.1 million or -1.3%. Individual withholding increased 5.1% compared to last year.

December corporate income collections totaled $62.5 million, a decrease of $18 million from year ago, and down $5.6 million below forecast. Corporate income tax refunds were $11.7 million, $6 million above year ago levels and $6.2 million better above monthly projections.

OTHER TAX REVENUE SOURCES
Alcoholic beverage
July-Dec. 2017: $27.4 million
July-Dec. 2016: $27 million

Games of skill
July-Dec. 2017: $28 million
July-Dec. 2016: $26 million

Tobacco
July-Dec. 2017: $110.2 million
July-Dec. 2016: $113.1 million

Insurance
July-Dec. 2017: $43.6 million
July-Dec. 2016: $4.2 million