Arkansas ended the fiscal year with a $1.161 billion tax revenue surplus driven in part by a more than 8% growth in sales tax collections. But recent federal data suggests Arkansas’ economy may not be as robust in the back half of 2023.
Total tax revenue in the fiscal year (July 1 2022-June 30, 2023) was $8.85 billion, up 0.9% compared with the previous fiscal year and 1.7% more than the budget forecast, according to a report posted Wednesday (July 5) by the Arkansas Department of Finance and Administration (DFA).
Individual income tax revenue in the fiscal year was $3.916 billion, down 6.1% compared to the previous fiscal year and 1.1% above the budget forecast. Sales and use tax revenue in the fiscal year was $3.418 billion, up 8.4% compared with the previous fiscal year and up 1% above the forecast. Corporate income tax revenue was $842.5 million, up 0.6% compared to the previous fiscal year and 6.5% above the forecast.
Tax revenue in June totaled $951.2 million, up 5.2% compared with June 2022 and up 14.4% compared with the budget forecast.
June individual income tax revenue was $313.4 million, down 7.5% compared with June 2022 and 10.8% above the forecast. June sales and use tax was $312.6 million, up 9.3% compared with June 2022 and 6.9% above forecast. Corporate income tax revenue in June was $122.3 million, down $11.2 million compared with June 2022 and $53.3 million above forecast.
“The fiscal year ended above forecast in all major categories of collections and above year-ago levels in Sales Tax collections,” John Shelnutt, DFA administrator of economic and tax research, noted in Wednesday’s report. “This broad-based gain resulted from another year of high growth in Sales Tax collections and less decline in income tax categories than expected from tax rate reductions and adverse comparison to unusually high capital gains, bonuses, and earnings reported in FY 2022.”
The fiscal year surplus of $1.161 billion marks the third consecutive year of a surplus of near or more than $1 billion. Total tax revenue in fiscal year 2022 (July 2021-June 2022) was $8.773 billion, up 8% – or $651.2 million – and the budget surplus was $1.628 billion. The surplus in the fiscal year that ended June 2021 was $945.7 million.
“Strong economic growth accounted for Fiscal Year 2023 ending with a $1.16 billion surplus,” Larry Walther, secretary of the Arkansas Department of Finance and Administration, said in a statement. “The economy outperformed expectations across the fiscal year in revenue results amid volatility from slowing inflation, tax reductions and tight labor markets.”
But that strong growth is moderating, according to an analysis of federal data by Michael Pakko, chief economist and state economic forecaster at the University of Arkansas at Little Rock’s Institute for Economic Advancement.
A June 30 report from the U.S. Bureau of Economic Analysis shows signs of relative weakening of the Arkansas economy, according to Pakko. The report indicated that Arkansas’ personal income increased at a 3.2% annual rate in the first quarter, below the national growth rate of 5.1%.
Arkansas’s real GDP growth in the first quarter came in at an annualized growth rate of 0.2%, compared to a U.S. growth rate of 2%. Arkansas’ growth rate was among the lowest in the nation, with only Rhode Island showing slower growth at 0.1%, Pakko noted.
“Quarterly growth rates of personal income can vary significantly without necessarily indicating a change in trend. If we consider the longer-term performance of income growth in Arkansas, the first-quarter results are disappointing, but they do not suggest an imminent downturn. In fact, the growth rate of total personal income over the past four quarters has been 6.2% in Arkansas and 5.1% for the U.S.,” Pakko noted in his analysis.
OTHER TAX REVENUE
July 2022-June 2023: $238.5 million
July 2021-June 2022: $175.3 million
July 2022-June 2023: $215.5 million
July 2021-June 2022: $205.8 million
July 2022-June 2023: $76.6 million
July 2021-June 2022: $75.1 million
Games of skill
July 2022-June 2023: $54.3 million
July 2021-June 2022: $46 million