State budget coffers were brimming headed into October and the early holiday shopping season as tax collections in all major revenue categories were ahead of forecast, the Arkansas Department of Finance and Administration reported Tuesday (Oct. 2).
Net available general revenues in September jumped 9.8% or $50.7 million to $569.6 million from a year ago, which is $15.4 million or 2.8% ahead of the state’s forecast. Year-to-date net available revenue totaled a robust $1.473 billion through the third month of the 2019 fiscal year, up 6.8% or by $93.7 million compared to a year ago and $33.4 million or 2.3% ahead of the state’s annual forecast that runs from July 1, 2018 to June 30, 2019.
Yearly gross general collections, a broader economic indicator that includes collections from all available categories, also increased by $77.5 million to $1.656 billion, up nearly 5% compared with the same period of fiscal 2018, and $30.8 million or 1.9% above the general forecast.
The revenue growth trend in Arkansas is not unusual, given that fiscal conditions nationwide show signs of improvement and stability compared to this time last year, according to the annual Fiscal Survey of States produced by the National Association of State Budget Officers (NASBO). According to the NASBO report culled from proposed and enacted biennial budgets for Arkansas and the other 49 states, general fund budgets across the U.S. are expected to increase 3.2% in fiscal 2019 to $861.8 billion, in line with the average annual growth rate proposed by governors since the Great Recession.
“This represents an improvement over this time last year, when states were dealing with the impacts of lackluster revenue growth for multiple years, causing governors to propose extremely cautious budgets with a total general fund spending increase of just 1% for fiscal 2018,” the NASBO report stated. “Overall, 42 states plan for general fund spending increases in fiscal 2019, including 35 states with planned increases of 2% or more. By comparison, this time last year, governors’ spending plans for fiscal 2018 called for increases in just 35 states, and only 24 states were expecting growth of more than 2%.”
Ahead of the 2018 fiscal session, Gov. Asa Hutchinson’s proposed budget for fiscal year 2019 forecasted net available revenues to reach $5.69 billion, an increase of $237 million or 4.3% above fiscal year 2018. At the end of the biennial fiscal session in March, Hutchinson signed off on a $5.6 billion budget for fiscal 2019, a modest 2.8% increase in general revenues.
Three months ago, Arkansas closed out the year with a surplus of $41.7 million. That trend of strong, across-the-board tax collections has continued well into 2019, said DFA economist John Shelnutt, the state’s chief economic forecaster.
“I think the broad-based range of gains is the story at this point of major revenue categories up together and consumer and business-oriented sectors of sales tax moving up together,” said Shelnutt, deputy director of DFA’s Economic Analysis & Tax Research group. “That would be expected during peak growth periods in the economic cycle.”
Shelnutt, however, did offer one caution. He said to look at monthly and even quarterly results to make comparisons, rather than yearly assessments, could prove unreliable.
“Monthly results are normally volatile in making definitive statements and even quarterly results can swing some,” he said. “I’ll just say it is encouraging to see the broad-based pattern emerge after several years of volatility above and below expectations with concerns across most of the fiscal year in recent years.”
Statewide, general revenues are primarily driven by individual and corporate income tax collections, sales taxes and other tax collections by the state. Among the major categories, Shelnutt said individual income tax collections jumped 10.6% compared to the prior year and were $4.2 million above forecast. That gain primarily reflected payroll timing differences, he said.
Besides the strong general revenue collections in September, gross monthly revenues grew by $47.8 million or 8.1% to $634.7 million compared to year ago results. That total for all revenue categories was also $15.2 million or 2.4% above forecast. Individual income tax collections, as noted, were $30.1 million ahead of year ago levels to $314.1 million, and 1.3% above forecast. Corporate income tax collections totaled $80.4 million, an increase of $9.2 million from a year ago and $9.2 million or 12.9% above forecast.
Sales and tax collections, another key revenue component, rose to $208.5 million, which is $9.1 million or 4.6% ahead of September 2018. Collections were $2 million or 1% above projections, state budget forecasters said.
Year-to-date, individual income tax collections rose $37.6 million or 5.1% to $767 million from a year ago, which is 0.8% below forecast. Sales and use tax revenue in fiscal 2019 was $629.1 million, up $29.8 million or 5% compared with the previous year and fractionally below forecast.
Shelnutt told Talk Business & Politics that internet sales tax from existing brick-and-mortar retailers along with voluntary collections by out-of-state online sellers with no physical presence in Arkansas, like Amazon, are included in the sales and use tax collections totals.
“It will take additional state legislation to make that out of state portion not voluntary and attain broader scope for registrations and sales and use tax collections,” he said.
In late June, the U.S. Supreme Court ruled for the state of South Dakota in the case South Dakota v. Wayfair Inc., upholding that state’s requirement that large-scale online sellers without a physical presence in the state collect and remit sales and use taxes.
This week the state Tax Reform and Relief Task Force will continue its task of looking at several tax cut proposals and reform measures to include in the upcoming legislation session that begins in January 2019. One of those proposals includes a measure to add Arkansas to the growing list of states looking to pad state budget coffers with additional revenue from remote or internet sales tax bounty.
OTHER TAX REVENUE SOURCES
July-September 2019: $15 million
July-September 2018: $14.6 million
Games of skill
July-September 2019: $16.7 million
July-September 2018: $15.5 million
July-September 2019: $54.9 million
July-September 2018: $56 million
July-September 2019: $21.5 million
July-September 2018: $21.1 million