Boosted by larger-than-expected gains in individual and corporate income tax collections, Arkansas' general-revenue collections in September increased by $29.9 million over the same month a year ago to $664.5 million.
September's collections beat the state's forecast by $25.6 million or 4%, the Department of Finance and Administration reported Wednesday in its monthly revenue report.
Last month's collections are a record high for September, outdistancing the previous high of $634.7 million in 2018, said Whitney McLaughlin, a tax analyst for the finance department.
Tax refunds and some special government expenditures come off the top of total general revenue, leaving an amount that state agencies are allowed to spend.
The net in September increased by $34.5 million or 6.1% from the same month a year ago to $604.1 million, beating the state's forecast by $31.4 million or 5.5%.
Gov. Asa Hutchinson said Wednesday that "it is encouraging to see our monthly revenues meet and exceed our budget projections.
"This means we are successfully absorbing the latest round of income tax rate cuts, and we are continuing to pay for important new initiatives such as increased teacher pay and mental health stabilization units across the state," the Republican governor said in a written statement issued by his office.
"While we have a year-to-date surplus, we need to be mindful that we have a long way to go in our budget year, and we will continue to manage the budget carefully," said Hutchinson, who is on an economic-development trip to the United Arab Emirates and India this week.
September is the third month in fiscal 2020, which started July 1.
The month's sales and use tax collections increased a tad from the same month a year ago, but fell short of forecast.
The revenue report isn't an indication that consumers are slowing down their spending, and it reflected continued growth in the state's economy with more people working, plus more of them working longer hours, said John Shelnutt, chief economic forecaster.
"We would have been above forecast slightly if we had not had that reconciliation ... of about $4.5 million" from sales tax collections in August that boosted that month's figures, he said.
Arkansas' unemployment rate remained at 3.4% in August, which kept the state's rate in record low territory for the fourth month in a row, the Arkansas Division of Workforce Services reported nearly two weeks ago. The nation's unemployment rate was 3.7% in August.
FISCAL 2020 FIGURES
During the first three months of fiscal 2020, total general-revenue collections increased by $36.8 million or 2.2% from the same period in fiscal 2019 to $1.69 billion, exceeding the forecast by $32.4 million or 1.9%.
So far in fiscal 2020, the net has increased by $42.9 million or 2.9% from the same period last year to $1.5 billion, outdistancing the forecast by $38.9 million or 2.6%.
This fiscal year, the general-revenue budget totals $5.75 billion -- an increase of $124.1 million from last year's budget -- with most of the increase targeted for human services and education. The Legislature and Hutchinson enacted the budget earlier this year.
The Legislature and Hutchinson also enacted measures to phase in cuts in the state's top individual and corporate income-tax rates over the next few years, and require out-of-state Internet retailers without a physical presence in the state to start paying sales tax on their in-state sales. The changes ultimately will affect the general-revenue tax collections in different ways.
Other legislation imposed a wholesales sales tax on fuel and increased registration fees on electric and hybrid vehicles. These changes, effective Tuesday, will raise money for highways and roads. The fuel taxes and registration fees are considered special revenue, however.
BY CATEGORY
According to the finance department, September's general revenue included:
• A $23.7 million or 7.5% increase in individual income tax collections over the same month a year ago to $337.7 million, which exceeded the forecast by $11 million or 3.4%.
Withholdings are the largest category of individual income tax collections. They increased by $10.8 million or 4.8% over the same month a year ago to $236.9 million, which beat the forecast by $900,000.
• A $1 million or 0.5% increase in sales and use tax collections from the same month a year ago to $209.5 million, which fell $4.1 million or 1.9% below the forecast.
The sales-tax collections were boosted by a $2.7 million, or 11% increase, in motor vehicle sales tax collections over the same month a year ago to $26.6 million, Shelnutt said.
September is the second month that the state has been paid tax revenue under Act 822 of 2019 that requires Internet retailers to begin collecting and remitting sales and use taxes on in-state purchases. State officials have projected Act 822 will raise $32.4 million more in overall revenue, including $21.8 million in general revenue, in fiscal 2020.
"Unofficial revenue data compilations of this 'group' indicates a gain of $4.8 million in September collections from this group with variance in the data for types of registrations and timing of registrations (last year and this year)," Shelnutt said in a written statement. "The monthly forecast was constructed with $1.8 million in additional state general revenue sales tax for the marketplace/remote sellers in September collections ..."
However, the utilities part of sales-tax collections declined in September from a year ago, a trend of many months.
That's partly because of "the pass through of the Federal Tax Cut and Jobs Act as utility bill credits in lowering the tax base for sales tax," Shelnutt said.
"The bill credit impact of this is limited to the investor-owned regulated utilities in the state. This amount was not quantified for the forecast, but it is part of the year over year declines we are seeing in the collections. Other factors may be in play with utilities such as weather effects, industrial usage rates, etc.," he added.
• A $7.7 million increase in corporate income-tax collections over the same month a year ago to $88.1 million, beating the forecast by $17.5 million or 24.8%. Corporate collections are historically volatile.
CASINOS, HIGHWAYS
September is the second month in which Oaklawn Racing Casino Resort in Hot Springs and Southland Casino Racing in West Memphis are paying a lower state tax rate on casino revenue under Amendment 100 to the Arkansas Constitution, approved by voters in November.
The September report showed $2.6 million in casino revenue -- a dip from $5.5 million a year ago -- but $300,000 above forecast.
Amendment 100 allowed Oaklawn and Southland to operate as full-fledged casinos. The amendment also authorizes new casinos in Jefferson and Pope counties with the approval of local officials.
State officials expect to take in $31.2 million in fiscal 2020 -- down from $69.7 million in fiscal 2019 -- but projections say that figure will grow to $55.9 million in fiscal 2021 and steadily increase to $81.8 million by fiscal 2028.
Under Act 416, casino-related revenue above $31.2 million will be diverted to the state Department of Transportation, which will be guaranteed a minimum of $35 million a year from casino-related gambling taxes, a restricted reserve fund and other sources.
Act 416 instituted the new wholesale sales tax on gas and diesel fuel, and that tax is projected to raise about $58 million a year for state highways.
The increased registration fees for hybrid and electric vehicles are forecast to raise about $1.9 million a year.
In total, Act 416 is projected to raise about $95 million more a year more for the Department of Transportation and about $13 million a year apiece for cities and counties.
INCOME-TAX CUTS
On Jan. 1, 2020, the first prong of the governor's plan to reduce the top individual income tax rate over two years takes effect.
Act 182 of 2019 cuts the top rate of 6.9% to 6.6% on Jan. 1 and then to 5.9% on Jan. 1, 2021. State officials project it will reduce revenue by $97 million a year by the time it's fully implemented.
In 2015, the Legislature enacted the governor's plan to cut rates for those who make between $21,000 and $75,000 a year in taxable income. That plan was projected to reduce revenue by about $100 million a year.
In 2017, the Legislature approved Hutchinson's plans to cut rates for people who make below $21,000 a year in taxable income. That plan is projected to reduce revenue by $50 million in fiscal 2020 and each year thereafter.
Act 822 of 2019 will cut the state's top corporate income tax rate from 6.5% to 6.2% on Jan. 1, 2021, and then to 5.9% on Jan. 1, 2022. These cuts are projected to reduce revenue by $9.8 million in fiscal 2021, $29.5 million in fiscal 2022 and $39.4 million a year thereafter.
A Section on 10/03/2019