Bolstered by better-than-expected income and sales tax collections, state general revenue in July increased by $245.9 million over the same month a year ago to a record-setting $766.8 million, state officials reported Tuesday.
Last month's collections outdistanced the pandemic-revised forecast by $79.9 million, or 11.6%, the state Department of Finance and Administration said in its monthly revenue report.
July's collections represent a record for the month, exceeding the previous high of $531.8 million in 2018, said Whitney McLaughlin, a tax analyst for the finance department.
The 47.2% increase in gross general revenue collections from the same month a year ago comes after the state shifted its individual income tax filing and payment deadline from April 15 to July 15 to coincide with the federal government's shift of that deadline, in response to the expected economic effects of the coronavirus pandemic.
The state also cut its forecast for fiscal 2020 but then collected more revenue than projected in that fiscal year, which ended June 30. Fiscal 2021 started July 1.
Individual income and sales and use taxes are state government's two largest sources of general revenue.
Tax refunds and some special government expenditures come off the top of total general revenue, leaving a net amount that state agencies are allowed to spend.
The net in July increased by $203.1 million, or 43.9%, over the same month a year ago to $665.9 million. It exceeded the forecast by $52.7 million, 0r 8.6%, the finance department reported.
"We expected July to be a down month as a result of early tax collections in May and June," Gov. Asa Hutchinson said Tuesday.
"To end July with a $52 million surplus is really good news and reflects the underlying growth potential of the Arkansas economy," the Republican governor said in a written statement.
"These continue to be uncertain economic times and the revenues are difficult to forecast because of the national downturn," Hutchinson said. "It is really encouraging to see our revenue picture so strong with the income tax cuts that were adopted last [fiscal] year."
In the fiscal session in April, the Legislature enacted a $5.89 billion general revenue budget for fiscal 2021.
The finance department's April 2 forecast will provide $5.68 billion for the fiscal 2021 budget and leave $212.2 million unfunded.
On April 2, the department trimmed its original forecast for fiscal 2021 by nearly $206 million, citing a projected economic recession triggered by the coronavirus pandemic.
On March 23, the finance department cut its fiscal 2020 net general revenue forecast by $353.1 million, to $5.38 billion, because of changes spawned by the pandemic, including the shift of the state's individual income tax filing and payment deadline to July 15.
On June 30, the last day of fiscal 2020, the finance department again revised its net revenue forecast for that fiscal year, this time increasing it by $240 million, to $5.62 billion, based on better-than-expected collections.
According to the finance department, July's general revenue collections included:
• A $207.5 million, or 89.3%, increase in individual income tax collections from a year ago to $439.9 million, which exceeded the state's forecast by $17.6 million, or 4.2%.
Withholdings are the largest category of individual income tax collections. They dropped by $9 million from a year ago to $206.5 million, and exceeded the forecast by $15.8 million. They declined by 9% from last year because of income tax cuts and the associated withholding formula change.
Collections from individual income tax returns and extensions increased by $186.3 million from a year ago to $196.6 million, but fell $29.9 million below the forecast.
The collections from individual income tax returns fell below the forecast by $48.7 million last month, because of more taxpayers filing earlier than expected and fewer filing in July. Meanwhile, collections from extensions of individual income tax returns were $18.8 million above the state's forecast, said John Shelnutt, the state's chief economic forecaster.
Collections from estimated individual income tax payments increased by $30.3 million over the same month a year ago, to $36.8 million, and exceeded the forecast by $31.7 million. The estimated payments are for tax year 2020.
• A $30.7 million, or 14.9%, increase in sales and use tax collections from the same month a year ago to $236.4 million, which exceeded the forecast by $32.5 million, or 16%.
Sales tax collections from retail trade increased by "a shocking 36.8% over a year ago," or by $26.2 million, to $97.4 million, Shelnutt said.
"I would attribute that to federal stimulus money flowing into Arkansas, combined with some rebound in the economy in a V-shaped recovery," Shelnutt said. "Who knows what the eventual V-shape is going to look like?"
In addition, sales tax collections increased from a year ago because of "spending locally that might have been seasonally spent out of state on travel," he said.
"We do see a lot of evidence, not just in Arkansas, but across the country of a lot of spending on home improvement and that type of big-box store as well as discount stores and online stores," Shelnutt said. "There are actually stories out there of shortages of lumber starting to appear."
The sales tax collections from motor vehicle and trailer sales increased by $3.6 million, or 12.8%, over the same month a year ago to $32.4 million, Shelnutt said. "It's a blend of stimulus and redirection of spending patterns," he said.
• A $27.7 million, or 110.3%, increase in corporate income tax collections over the same month a year ago to $52.8 million, which outdistanced the forecast by $23.7 million, or 81.4%, in a normally light collection month.
Corporate income tax collections are "more difficult to explain because of its volatility, and it's mainly large entities, not partnerships, not LLCs [limited liability companies], so they have different types of corporate tax planning," Shelnutt said.
• A $3.3 million, or 55.7%, drop in casino gambling tax collections from a year ago to $2.6 million, which fell about $300,000, or 10.1%, below the state's forecast.
The state's July 2019 gaming revenue included partial casino revenue and the normal one-month lag of collections from the expiring electronic games of skill revenue from June that was collected in July 2019, Shelnutt said.
The electronic games of skill had double the effective state tax rate of the current casino tax rate, he said. The casino tax rate -- which also has a different distribution rate to state general revenue -- was set by Amendment 100 to the Arkansas Constitution.
Amendment 100, approved by voters in November 2018, authorized the expansion of gambling operations and race tracks in Hot Springs and West Memphis into full-fledged casinos. Under Amendment 100, the Arkansas Racing Commission awarded a casino license in Jefferson County to the Quapaw Nation's Downstream Development Authority in June 2019; the license then went to Saracen Development LLC in October. The commission on Thursday awarded a casino license in Pope County to Gulfside Casino Partnership.
Larry Walther, secretary of the finance department, pointed out on Tuesday that "our refunds were a little higher" than expected in July, "so that cut back on the net available" general revenue for state agencies.
In July, individual income tax refunds increased by $32.9 million over the same month a year ago, to $41.6 million, and exceeded the state's forecast by $25 million as a result of delayed refund claims tied to the individual income tax due-date shift to July 15, according to the finance department.
On Jan. 1, 2021, the state's top individual income tax rate is to drop from 6.6% to 5.9% under Act 182 of 2019. The state's top rate dropped from 6.9% to 6.6% on Jan. 1 of this year.
State officials projected Act 182 would reduce general revenue by $25.6 million in fiscal 2020; by $48.5 million more in fiscal 2021; and then by $22.9 million more in fiscal 2022, which starts July 1, 2021, to ultimately reduce general revenue by $97 million a year.
On Jan. 1, 2021, the state's top corporate income tax rate also is scheduled to drop from 6.5% to 6.2% for income exceeding $100,000 under Act 822 of 2019.
That top rate is to drop to 5.9% for income exceeding $25,000, starting Jan. 1, 2022. State officials projected these corporate income tax cuts would reduce revenue by $9.8 million in fiscal 2021, $29.5 million in fiscal 2022 and $39.3 million in fiscal 2023 and beyond.