Arkansas’ fiscal year off to a good start with 47.2% increase in July revenue

State tax revenue in July totaled $766.8 million, up 47.2% thanks to an almost 90% growth in individual income tax resulting from a tax deadline shift from April to July, according to Tuesday’s (Aug. 4) report from the Arkansas Department of Finance and Administration (DFA).

Individual income tax revenue totaled $439.9 million in July, up 89.3% compared with July 2019, and 4.2% above the forecast. Sales and Use tax revenue – an indicator of consumer spending and confidence – in July totaled $236.4 million, up 14.9% compared with July 2019 and up 16% above the forecast. Corporate income tax revenue was $52.8 million in July, up $27.7 million compared with July 2019 and $23.7 million above the forecast.

“All major categories were above forecast in July, led by Sales Tax at $32.5 million above, Corporate Income at $23.7 million above, and Individual Income at $17.6 million above. Growth remained high in the Sales Tax sectors of retail and vehicle sales,” John Shelnutt, DFA director of economic analysis and tax research, noted in his monthly report.

Gov. Asa Hutchinson said he was concerned most Arkansans had paid income tax prior to July and the total revenue would be below forecast.

“Well, the good news is that we ran a surplus. Our revenue exceeded our forecast, which is really good news as we start the beginning of the fiscal year. That should give us confidence both in terms of our education budget but also as we look into the next general session of the Legislature,” he said.

Mervin Jebaraj, economist and director of the Center for Business and Economic Research and the University of Arkansas, said some credit for gains in sales and use tax revenue – consumer spending – must go to federal relief programs Congress approved earlier this year.

“I think most people underestimate how much the $600 a week boost in UI [unemployment insurance] benefits and the $1,200 checks boosted consumer spending during the pandemic. Low and middle-income folks were responsible for the spending increases and high-income folks were still spending less money than before the pandemic,” Jebaraj said.

The $600 a week provision of the federal program ended July 31. Congress is considering a new relief package, but the $600 provision is a sticking point, with Republicans opposed to the benefit and Democrats seeking to extend it. The one-time stimulus checks put an estimated $2.128 billion in the hands of Arkansas households.

The previous fiscal year (July 2019-June 2020) ended with $369.4 million in net available revenue more than expected. Fiscal year 2020 tax revenue ended down just 2.5% despite several months in early 2020 of economic disruption resulting from COVID-19 shutdowns. The revenue was 4.1% above the revised forecast. Gross revenue in the previous fiscal year was $6.967 billion, 2.5% below fiscal year 2019, but up $272.5 million more than the forecast.

OTHER REVENUE SOURCES
Tobacco
July 2020: $20.2 million
July 2019: $20.2 million

Alcoholic beverages
July 2020: $6.5 million
July 2019: $5.9 million

Games of skill
July 2020: $2.6 million
July 2019: $5.9 million

Insurance
July 2020: $600,000
July 2019: $600,000