State general revenue surged last month, exceeding year-ago collections by $99.2 million and the state’s forecast by $88.1 million in what the state’s chief fiscal officer and others referred to as the “April surprise.”
April’s tax collections increased by 13.8 percent over April 2012 figures to $817.4 million - the largest amount that the state has ever collected in any one month - the state Department of Finance and Administration reported Thursday.
The previous record for a month was $718.2 million in April 2012. Historically, the state’s best month for revenue is the one in which state tax returns are due. In recent years, that month has been in April, though it was May in earlier years.
Richard Weiss, the state’s chief fiscal officer, attributed the nearly $100 million increase in general revenue last month to a large increase in individual income tax collections, mostly from high-income earners, many of whom declared income early to avoid paying higher federal taxes that went into effect on Jan. 1.
Arkansas’ increased tax revenue in April is mostly made up of one-time gains, Weiss said.
“Our forecast is still good, but we got a big influx of money that was not anticipated,” he told reporters. “We got a big April surprise.”
Since state income taxes are mostly tied to the federal income tax code, most states are seeing “an April surprise just like the feds are seeing,” said Ron Alt, senior research associate for the Washington, D.C.-based Federation of Tax Administrators.
West Virginia is an example of another state benefiting from the April surprise, said John Shelnutt, Arkansas’ chief economic forecaster, pointing to news reports that West Virginia’s personal income tax revenue last month increased by 30 percent, or $58 million, over April 2012 in a one-time windfall.
Last month, higher-income taxpayers paid state income taxes on dividends, capital gains, business transactions and stock bonuses rather than waiting to pay it in the future so that they could avoid higher federal income tax rates, said Tim Leathers, deputy director of Arkansas’ finance department.
During the first 10 months of fiscal 2013 in Arkansas, gross general revenue increased by $240.8 million (4.9 percent) over the same period in fiscal 2012 to $5.149 billion. That exceeded the state’s forecast in November by $128.8 million (2.6 percent).
So far in fiscal 2013, collections from individual income taxes have increased by $222.3 million (9.1 percent) to $2.657 billion and exceeded the forecast by $163.3 million (6.5 percent).
Tax refunds and several other government expenditures, including court-ordered desegregation payments, come off the top of “gross” general revenue, leaving a “net” general revenue that agencies are allowed to spend.
In fiscal 2013, net general revenue has increased so far by $240.1 million (6.1 percent) over the same period in fiscal 2012 to $4.145 billion, exceeding the forecast by $163.9 million (4.1 percent).
On Wednesday, Gov. Mike Beebe’s administration boosted its general revenue forecast by $34.2 million for fiscal 2013 and by $11.7 million for fiscal 2014, citing slightly stronger-than-expected economic growth.
According to the finance department, April’s general revenue included:
A $102.2 million (21.9 percent) increase in individual income taxes over a year ago to $568.3 million. That exceeded the state’s forecast by $99.7 million (21.3 percent).
Individual income tax withholdings increased by $2.6 million over a year ago to $241.5 million and estimated individual income tax payments decreased by $4.2 million to $48.9 million, said tax analyst Whitney McLaughlin. Estimated payments are generally for taxes owed on income not subject to withholding, such as interest and dividends, capital gains,self-employment income, etc, she said.
Individual income tax payments for taxes due April 15 and filed with income tax returns and payments made with a filed tax extension increased by $103.8 million over a year ago to $277.9 million, she said.
Much of the increase in recent collections represents income shifted to tax year 2012 and paid in fiscal 2013, according to the finance department.
“Larger than anticipated payments with filing extensions and returns received in April for tax year 2012 resulted from taxpayer strategy and improved business earnings. Other states and the IRS are reporting similar results this month,” the department said. “The gain included multiple types of activity, including tax shift strategy, expedited return processing compared to a year ago and one time-business transactions. Expedited returns processing potentially pulled activity from May collections into April.”
A $4.5 million (2.5 percent) decrease in sales and use tax collections over a year ago to $174.2 million, which fell short of the state’s forecast by $12 million (6.5 percent).
Slow job and income growth, low inflation and “the diversion effect on taxable sales from elevated motor fuel costs to consumers in recent months” are contributing to ongoing weakness in sales and use tax collections, according to the finance department.
A $1.1 million (2.9 percent) increase over a year ago to $39.9 million in corporate income taxes. That fell $1.5 million (3.6 percent) short of the state’s forecast. Corporate income tax collections often fluctuate based on corporations’ federal tax strategies, according to the department.
Richard Wilson, assistant director of research for the Bureau of Legislative Research, summed up April’s tax collections: “It was a pretty good month.”
Front Section, Pages 1 on 05/03/2013