Month's tax haul tops state forecast

Graphs showing Sources of state general revenue during the first five months of fiscal 2018.
Graphs showing Sources of state general revenue during the first five months of fiscal 2018.

Higher-than-expected individual income tax collections contributed to Arkansas' state government collecting $9.4 million more in general revenue in November than the same month a year ago and surpassing projections by $1.8 million.

November's collections totaled $457.8 million -- a 2.1 percent increase over a year ago and 0.4 percent above the state's forecast -- the state Department of Finance and Administration reported Monday in its monthly revenue report. The report showed the state's general revenue tax collections have fallen below expectations during the first five months of fiscal 2018, which started July 1.

Last week, Gov. Asa Hutchinson's administration lowered its projections for tax collections by $22.1 million for the entire fiscal year but didn't cut the state's $5.45 billion general revenue budget. Monday's report, however, was based on earlier projections released in May by the finance department, state officials said.

During the first five months of fiscal 2018, state government has collected $2.54 billion in general revenue -- an increase of $39.1 million, or 1.6 percent, over the same period in fiscal 2017, but the amount is $21.1 million, or 0.8 percent, below the state's forecast.

"We are encouraged by key indicators in this month's report. Individual income tax, our largest category of gross collections, continues to exceed forecast which reflects the strength of Arkansas's job market," Hutchinson said in a written statement.

Later Monday, speaking to reporters, Hutchinson said, "You've got to look back and learn from last year, where we had a number of months that we were down and behind. ... By the end of the year, we were right on target for the original forecast. I think patience is the word."

The record for revenue in November remains the $480.7 million collected in 2009, according to Whitney McLaughlin, a tax analyst for the finance department.

The largest pot of collections, $210.4 million from individual income taxes, increased by $8.2 million or 4.1 percent above year-ago figures and was above projections by $2.3 million in November, or 1.1 percent. That reflects more people working in total and working longer hours, said John Shelnutt, the state's chief economic forecaster.

Sales and use tax collections increased by $5.1 million, or 2.8 percent, from a year ago to $189.6 million, but fell $2.7 million, or 1.4 percent, below expectations.

Corporate tax collections also lagged in November, totaling $4.4 million, which was a decrease of $6 million, or 57.7 percent, from a year ago and was $1.1 million, or 20.3 percent, below expectations.

Other taxes that make up a smaller share of revenue -- on alcohol, tobacco and insurance -- all increased over the same month a year ago and came in above expectations.

Shelnutt said the state's sales tax collections in November were "a mix of different stories," as some categories, such as motor vehicle sales, rose and others dipped.

The state would have reached its sales and use tax forecast in November, he said, if not for refunds paid to large sellers through claims and adjustments.

Sales and use taxes are remitted to the state a month after they are collected from consumers, meaning the November report reflected sales made in October, before the typical start to the holiday shopping season.

"In sales tax, I think we're going to have to watch the collection months for the holiday season," which will be reflected in the next three months' reports, Shelnutt said.

State government is expected to collect $6.734 billion in general revenue in fiscal 2018 -- $183 million more than it did in fiscal 2017 -- after the state revised its projections on Friday.

Lagging sales tax and corporate income tax collections in the past fiscal year caused Hutchinson to announce $70 million budget cuts in the spring, only to have $60 million in funding restored after tax collections rebounded at the end of the fiscal year.

Hutchinson cut the fiscal 2018 general revenue budget by $43 million in May, but he did not announce further cuts even as his administration lowered revenue expectations last week. The finance department didn't cut the budget largely because it reduced its projection for individual income tax refunds to make up for lowered projections for corporate income taxes and sales and use taxes.

"It's not worrisome yet," said state Sen. Larry Teague, D-Nashville, co-chairman of the Legislature's Joint Budget Committee.

"We've still got [seven] months left in the year, and I think that gives us time to get well," he said.

In addition to the total general revenue collections beating the state's forecast in November, the amount of corporate income tax refunds last month fell short. Corporate tax refunds, especially, fell more than $10 million short of expectations, "boosting the state's bottom line," Shelnutt said.

After all deductions, Arkansas ended the month with $379 million in new revenue available for state agencies to spend. That's $1.7 million, or 0.4 percent, below last year, but $9.4 million above the state's forecast.

During the first five months of fiscal 2018, the net totaled $2.173 billion -- a $20.8 million or 1 percent increase over the same period last fiscal year -- but $26.8 million, or 1.2 percent, below forecast.

Information for this article was contributed by Eric Besson of the Arkansas Democrat-Gazette.

Metro on 12/05/2017

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