A spike in the state’s corporate income tax collections in March fueled an $80.8 million increase in general revenue tax collections compared with the same month a year ago, to $599.3 million, according to a state report released Tuesday.
The collections exceeded the state’s forecast by $67 million.
March’s total general revenue haul set a record for the month, exceeding the previous high of $547.8 million in March 2016, said Whitney McLaughlin, a tax analyst for the state Department of Finance and Administration.
In March, corporate income tax collections increased by $64.7 million over the year before to $82.1 million and exceeded the state’s forecast by $66 million, the finance department said Tuesday in its monthly revenue report.
“The monthly revenue report is good news since it shows a year-to-date surplus of $46 million,” Gov. Asa Hutchinson said in a written statement.
“This month showed a spike in corporate tax collections, and this is typical of the unpredictable nature of corporate income tax payments,” the Republican governor said. “I expect the surplus to flatten out over the remainder of the fiscal year and with the current tax cuts that we are absorbing this year, it is important to be conservative in our final budget for next year. This revenue report should be encouraging to legislators in that our economy continues to grow.”
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Finance department Deputy Director Paul Louthian said he doesn’t know whether the spike in corporate income tax collections in March is the result of corporations’ federal tax planning.
“Over the last two years, we have seen where they make larger estimated payments and then not made a payment with the final tax return and then turned around and had a carry-forward into the next year, so we are not sure what the real story is. We just know it was unusual,” Louthian said in an interview.
Individual income tax and sales-and-use tax collections are state government’s two largest sources of general revenue. Collections of both taxes increased in March over year-ago figures. But while individual income tax collections exceeded the state’s forecast, sales-and-use tax collections lagged predictions.
John Shelnutt, the state’s chief economic forecaster, said in an interview that the state’s individual income tax withholdings increased in March by 4.4 percent over a year ago, “so it reflects good growth in the state economy.”
A Joint Budget Committee co-chairman, Sen. Larry Teague, D-Nashville, said he considered the tax collections reported in March to be “good news.”
“I’d always rather have money than not have money,” he said in an interview.
March was the ninth month of fiscal 2019. The fiscal year ends June 30.
During the f irst nine months of fiscal 2019, total general revenue collections increased by $194.2 million, or 4.1 percent, over the same period in fiscal 2018, to $4.95 billion. That exceeded the state’s forecast by $58.8 million, or 1.2 percent.
Tax revenue and some special government expenditures come off the top of total general revenue, leaving a net amount that state agencies are allowed to spend.
In fiscal 2019, the net has increased by $207.1 million, or 5.3 percent, over the same period in fiscal 2018, to $4.14 billion. That exceeded the state’s forecast by $46.8 million, or 1.1 percent.
During the f irst nine months of fiscal 2019, individual income tax collections have increased by about $35.7 million, or 1.5 percent over the same period in fiscal 2018; sales-and-use tax collections have increased by about $47.5 million, or 2.6 percent; and corporate income tax collections have increased by $110.8 million, or 44.8 percent.
The state’s projected general revenue budget for fiscal 2019 is $5.63 billion — $172.8 million more than the budget for fiscal 2018. The Revenue Stabilization Act that distributes general revenue to state-supported programs also would set aside $48 million of what the governor considers surplus money for a restricted reserve fund and another $16 million to help match federal highway funds.
Under a 2017 state law, Hutchinson’s plan to cut individual income tax rates for people with income below $21,000 took effect in January. The cuts are projected to reduce revenue by about $25 million in fiscal 2019 and $50 million in all of fiscal 2020.
The state’s sales tax on groceries also was cut, from 1.5 percent to 0.125 percent, on Jan. 1. Under a 2013 law, the tax cut of about $61 million a year is financed using savings from the end of desegregation payments to three Pulaski County school districts.
According to the finance department, March’s general revenue also included:
A $15.7 million, or 6.3 percent, increase in individual income tax collections over the same month a year ago, to $265.9 million. That revenue was $6.7 million, or 2.6 percent, above the state forecast.
Withholdings are the largest category of individual income tax collections. They increased by $9.2 million over the same month a year ago to $216.5 million, exceeding the state’s forecast by $300,000.
A $1.7 million increase in sales-and-use tax collections over March 2018 to $201.6 million, which fell short of the state’s forecast by $4.8 million.
“It’s down in some nonretail categories, including motor vehicles,” Shelnutt said. The reduction in the sales tax on food for home consumption also was reflected in the results.
A $3.4 million, or 17.7 percent, drop in tobacco tax collections compared with a year ago, to $15.8 million, which fell below the forecast by $2.1 million. Monthly changes in tobacco tax collections can be attributed to uneven patterns of tobacco stamp sales to wholesale purchasers.
For fiscal 2020 starting July 1, Hutchinson has proposed a general revenue budget of $5.75 billion — an increase of $125 million over the current budget — with most of the increase going to human services and education programs, including a boost in starting teacher pay.
Legislative leaders and Hutchinson are amid negotiations on the Revenue Stabilization Act that would distribute general revenue to state-backed programs in fiscal 2020.
Hutchinson and the Legislature have enacted Act 182, which would implement the governor’s plan to cut the top individual income tax rate from 6.9 percent to 5.9 percent over a two-year period. State officials project this cut will reduce revenue by about $97 million a year after it’s fully implemented.
Hutchinson and the Legislature also have enacted Act 416, which would implement a plan that is projected to raise $95 million a year more for state highways. The law imposes a wholesale sales tax on gas and diesel fuel, raises registration fees for electric and hybrid vehicles, and reallocates some state casino revenue. The plan also is forecast to raise about $13 million a year each for cities and counties.