Arkansas tax revenue down 7.1% in October; surplus rises to $115.8 million

A 2.6% decline in Arkansas tax revenue in the first four months of the fiscal year has less to do with economic conditions and more to do with lower tax rates and payroll timing, according to the state’s economic researcher.

Total revenue in the first four fiscal months was $2.717 billion, down 2.6% compared with the same period in the previous fiscal year and 5.8% above forecast. The state’s surplus – net available revenue above forecast – at the end of October was $115.8 million, according to a report posted Thursday (Nov. 2) by the Arkansas Department of Finance and Administration (DFA).

Income tax revenue in the first four fiscal months was $1.188 billion, down 3.7%% from the same period in 2022 and 7.2% above forecast. Sales tax revenue in the first four fiscal months was $1.157 billion, up 2.2% above the same period in 2022 and 2.1% above the forecast. The corporate income tax in the first four months was $195.1 million, down $50.4 million compared with the 2022 period and $47.8 million above the forecast.

“Gross revenue from collections was below year ago in part from tax rate reductions and lower income tax liability in adverse year ago comparisons for business earnings, bonuses, and capital gains,” John Shelnutt, DFA administrator of economic and tax research, noted in the report. “Major reporting sectors of Sales Tax displayed mostly higher growth over the prior year, reflecting continuing economic expansion in many sectors. Motor vehicle sales tax collections were up 7.2 percent from year ago October.”

OCTOBER COLLECTIONS
Total revenue in October was $659.9 million, down 7.1% compared with October 2022, and 2.5% above forecast. Individual income tax revenue in October was $306.2 million, down 13.5% compared with October 2022, and 2.4% above the budget forecast.

“Individual Withholding Tax revenue decreased -7.4 percent compared to last year, in part from Withholding Tax rate reductions and a negative payday timing effect compared to year ago,” Shelnutt noted.

Sales and use tax revenue was $386.4 million, up 1.2% compared with October 2022 and 1.5% below the forecast. Corporate income tax revenue was $34.4million, down $4.2 million compared with October 2022, and $14.4 million above the forecast.

Arkansas ended the previous fiscal year (October 2022-June 2023) with a $1.161 billion tax revenue surplus driven in large part by a more than 8% growth in sales tax collections. Total tax revenue in the fiscal year (October 2022-October 2023) was $8.85 billion, up 0.9% compared with the previous fiscal year and 1.7% more than the budget forecast.

The fiscal year surplus of $1.161 billion was the third consecutive year of a surplus of near or more than $1 billion. Total tax revenue in fiscal year 2022 (October 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.

OTHER TAX REVENUE
Tobacco
July 2023-October 2023: $66 million
July 2022-October 2022: $71.5 million

Alcoholic beverages
July 2023-October 2023: $26 million
July 2022-October 2022: $25.2 million

Insurance
July 2023-October 2023: $25.8 million
July 2022-October 2022: $24.6 million

Games of skill
July 2023-October 2023: $18.1 million
July 2022-October 2022: $16 million