Arkansas tax collections up broadly heading toward Christmas

Arkansas revenue collections through November continued at a healthy pace as new payroll additions and robust sales tax collections emptied into state budget coffers ahead of the holiday shopping season, state budget officials reported Tuesday (Dec. 4).

Through the first five months of the fiscal year beginning July 1, 2018, net available general revenues totaled $2.31 billion, up 6.6%, or $142.8 million, from a year ago, which is $11.5 million, or 0.5%, ahead of the state’s revised forecast. General revenue collections were $407.1 million, which is 7.4%, or $28.1 million, above year-ago levels and $11.5 million, or 2.9%, above forecast, according to financial data produced monthly by the state Department of Finance and Administration (DFA)

Yearly gross general collections, a broader economic indicator that includes collections from all available categories, increased by $121.3 million, or 4.8%, to $2.66 billion compared with the same period of fiscal 2018, and $14.8 million, or 0.6%, above the revised general forecast.

On Nov. 14, the same day Gov. Asa Hutchinson outlined his $5.75 million biennial budget for the 92^nd General Assembly that begins Jan. 14, DFA Director Larry Walther forecasted Arkansas to see continual nominal growth of 3.5% to 4.5% “in a low but rising inflationary setting.”

In a Dec. 1 letter sent to Sen. Bill Sample, R-Hot Springs, chair of the Arkansas Legislative Council, Walther said the DFA’s economic models show continued growth in key economic drivers for revenue growth in Arkansas, with moderate job gains and rising wage income.

“Private sector job growth will decelerate slowly over the next two years as labor market constraints and rising interest rates constrain activity and rates of new investment,” Walther said. “High-growth areas of the state will continue to drive state averages higher in jobs, income and growth in the local labor force. Rising wages in core sectors plus slight acceleration in inflation explain the forecast pattern of acceleration in nominal incomes and consumption over a period of decelerating job growth.”

In line with the state’s official forecast, Gov. Hutchinson also put forth his $5.75 billion budget request for the upcoming fiscal year 2020 at the mid-November legislative meeting. That budget request, which has to be approved by the legislature, is 2.3%, or $125 million, above the fiscal 2019 budget of $5.6 billion, which ends June 30, 2019.

Through November, DFA economist John Shelnutt told Talk Business & Politics that payroll withholding revenues and the retail segment of Arkansas sales tax collections drove monthly gains heading into Christmas.

“We continue to see high growth in the major revenue categories associated with the strong labor market,” Shelnutt said, concerning the state’s record low unemployment rate of 3.5%.

Besides the strong general revenue collections for November, gross monthly revenues saw a strong gain of $34.4 million, or 7.5%, above year-ago levels and $14.8 million, or 3.1%, ahead of the revised forecast. Sales and use tax collections, as noted, rose to $204.9 million, which is $15.2 million, or 8%, ahead of fiscal 2018. Collections were also above forecast by $6 million, or 3%.

“The motor vehicle portion of sales tax was up only fractionally in November collections at county offices after swings up and down in recent months,” Shelnutt said.

Income tax collections totaled $225.2 million, rebounding in November by $14.7 million, or 7%, compared to last year and $7.1 million, or 3.2%, above forecast. Corporate income tax collections totaled a robust $148.6 million, an increase of 16.2 million year-to-date and $4 million above the state’s forecast.

Year-to-date, individual income tax collections rose by 4.2%, or $50.3 million, to $1.24 million, which is $7.6 million, or 0.6%, above forecast. Corporate income tax collections for the year rose by $16.2 million to $148.6 million, which is $1.2 million below the revised forecast.

Sales and use tax revenue for fiscal 2019 grew to $1.03 billion, up $53.8 million from a year ago, and $6 million ahead of the official forecast. As an aside, Shelnutt mentioned that at the end of November, the state reached the “trigger point” for meeting all the requirements for the 2013 tax cut on groceries, which was enacted under former Gov. Mike Beebe.

“The tax rate at that point will be 0.125 from the remaining constitutional portion for Conservation Tax,” Shelnutt said. On the other hand, Gov. Hutchinson’s $50.5 million tax cut for the working poor enacted in the 2017 legislation will go into effect on Jan. 1, 2019.

“Both tax cuts are assumed in the revenue forecast for the second half of fiscal 2019 and with full year impact in fiscal 2020 and beyond,” Shelnutt said.

OTHER TAX REVENUE SOURCES
Alcoholic beverage
July-November 2019: $24 million
July-November 2018: $23.6 million
Games of skill
July-November 2019: $27.3 million
July-November 2018: $25.7 million
Tobacco
July-November 2019: $92.1 million
July-November 2018: $94.3 million
Insurance
July-November 2019: $44 million
July-November 2018: $42.1 million