Healthy tax collections boost Arkansas budget surplus to nearly $73 million in October

Heading into the all-important holiday season, Arkansas budget coffers in October were bolstered by healthy across-the-board tax collections in every major category, pushing funds available for state government use well above expectations and year ago results.

Four months into the fiscal year 2020 that began on July 1, 2019, the Arkansas Department of Finance and Administration (DFA) reported Monday (Nov. 4) that year-to-date (July–October) net available revenues were up 4.1%, or $78.4 million, to more than $1.986 billion from a year ago, and 3.8%, or $72.2 million, when compared with the state’s official budget forecast.

Gross tax revenue for fiscal year 2019, a key economic indicator that includes collections from all available categories, totaled nearly $2.248 billion at the end of October, a gain of 3.7% or $81.2 million when compared to year ago levels and 3.2% or $69.2 million above the DF&A forecast.

That improvement over last month’s totals was due to strong gains in all areas of state tax collection that brought net available revenues to $470.9 million in October, a robust $35.5 million or 8.1% above year ago results and an equally impressive $33.3 million or 7.6% above the DFA forecast.

“The ‘keys’ this month were everything,” DFA economist John Shelnutt said of the spike in tax collections. “We check each month for anything unusual to qualify the results but were unable to flag anything as one-time collections, calendar effects, or other unusual items this time.”

Shelnutt said every major revenue category was up relative to forecast and year ago, including individual income tax, sales and use tax, and corporate income tax. In the sales and use category Shelnutt said every sector was up and provided “an unusual example of consumer and business-related sectors moving together …”

“It was the second consecutive month of double-digit percentage growth in vehicle sales tax collections as measured year over year,” said Shelnutt, citing a 13% year-over-year spike in car sales revenue. “This activity is episodic based on incomes, dealer incentives, and consumer willingness to commit to big-ticket purchases.”

In some of the other sales tax sectors, Shelnutt said tax collections that have been holding back results in recent months turned positive, like utilities. Others showed some moderation, like food service and restaurants, he said.

Shelnutt said it may be a coincidence that payroll withholding revenue growth moved up 6.4% from the recent monthly average of 4.8%. He said it will take more months to determine if that growth is sustainable, or if it is a one-time hitch that can be explained later.

“That revenue growth exceeding 6% is more like what some other high-growth states are reporting,” said the chief economist for DFA’s Office of Economic Analysis and Tax Research group. “We will need more time to evaluate that.”

Individual and corporate tax refunds, which take away from net available revenues, were running slightly ahead of DFA projections and year ago results, Shelnutt said, noting that the monthly improvement is more an issue with faster processing this year.

“We expect that to even out in November tallies,” he said.

Through Oct. 31, year-to-date individual income tax collections rose by $53.8 million or 5.3% to $1.073 billion compared to a year ago and beat the state’s forecast by 2.6%, or $27.4 million. Individual income tax collections for the month rose by $21.7 million, or 8.6% to 274.1 million, which was also $11.7 million or 4.4% above forecast. State budget officials said individual withholding jumped 6.4% compared to October 2018.

As noted, sales and use tax collections through the first four months of fiscal 2020 rose by 2.7% to $851.7 million from a year ago. Compared to the state’s forecast, that total was slightly were just above neutral at 0.5% or $4.2 million. October sales and use tax collections, however, rose by 7% or $13.9 million to $213.7 million from a year ago. Compared to the monthly forecast, collections were also up 4.3% or $8.8 million.

For the year, corporate income tax collections totaled $153.1 million, up $14 million from the same period a year ago, but well above forecast at by 26.9% or $32.4 million. Corporate income tax collections through October also rose to $35.1 million, which was above year ago results and the DFA forecast by $14.4 million and $16.5 million, respectively.

OTHER TAX REVENUE SOURCES
Alcoholic beverages
July-October 2020: $20.6 million
July-October 2019: $19.4 million

Gaming
July-October 2020: $13.5 million
July-October 2019: $22.1 million

Tobacco
July-October 2020: $74.8 million
July-October 2019: $74.5 million

Insurance
July-October 2020: $23.3 million
July-October 2019: $23.1 million