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Arkansas' tax haul exceeds forecast

Month’s $661.5M down from 2019 by Michael R. Wickline | October 3, 2020 at 7:26 a.m.
FILE — The state Capitol is shown in this file photo.

Arkansas' general-revenue tax collections in September dropped by $3.1 million from what was received in the same month a year ago to $661.5 million, but beat the state's April 2 forecast for the month by $73.7 million.

Sales and use tax collections increased by 10.4% from the same month a year ago, while individual tax revenue declined by 5.3% compared with a year ago, the state Department of Finance and Administration reported Friday in its monthly revenue report.

Individual income and sales and use taxes are state government's two largest sources of general revenue. General-revenue collections help fund programs such as the public schools, the Medicaid program, colleges and universities and prisons.

The record collection for the month of September continues to be the $664.5 million collected in 2019, said Whitney McLaughlin, a tax analyst at the finance department.

Tax refunds and some special government expenditures are taken off the top of total general revenue, leaving a net amount that state agencies are allowed to spend.

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The net in September dipped by $12.2 million, or 2%, from a year ago to $591.9 million, yet it still exceeded the forecast by $65.1 million or 12.3%.

"The revenue report shows another month of encouraging news with a $158 million surplus at the end of the 1st quarter of the fiscal year," Gov. Asa Hutchinson said in a written statement.

September is the third month of fiscal 2021, which started July 1.

During the first three months of fiscal 2021, total general-revenue collections increased by $299.7 million or 17.7% over the same period in fiscal 2020 to $1.9 billion and exceeded the forecast by $207.5 million or 11.6%.

So far in fiscal 2021, the net increased by $227.4 million or 15% over the same three-month period in fiscal 2020 to $1.7 billion and beat the forecast by $158.8 million or 10%. The results include net collection increases tied to the pandemic-related shift in the income tax filing and payment deadline from April 15 in fiscal 2020 to July 15 in fiscal 2021, according to the finance department.

Hutchinson said the "challenge we face is that the pandemic continues to undermine a complete economic recovery.

"Jobs are coming back and consumer confidence is growing, but the hospitality sector of our economy and some manufacturing will take longer to rebuild," the Republican governor said in his written statement.

"For that reason, any change to the forecast for this fiscal year will depend upon our budget numbers over the next few months and the needs of our state agencies," Hutchinson said.

"There is no plan to change the forecast at this time. My goal has always been to reduce the state individual income tax rate. However, our next step in income tax reduction will depend upon the economic outlook in the next few months," the governor said.

In the fiscal legislative 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 by $205.9 million, citing a projected recession triggered by the coronavirus pandemic.

According to the finance department, September's general revenue included:

• A $17.8 million or 5.3% drop in individual income tax collections from a year ago to $320 million, which beat the forecast by $48 million, or 17.6%.

Withholding is the largest category of individual income taxes.

Withholding collections declined by $35.4 million from a year ago to $201.5 million, but beat the forecast by $13.6 million.

They decreased by 15% compared with a year ago because the month had one fewer Friday and one fewer Thursday payday than the same month a year ago; a withholding formula change related to an individual income tax cut; and the individual income tax cut, said John Shelnutt, of the economic analysis and tax research unit in the finance department.

Estimated individual tax payments last month increased by $9.9 million over a year ago to $98.8 million and outdistanced the state's forecast by $25 million.

"Apparently the law or the rule is you have to pay [90%] of what you paid last year and, if there has been a reduction in their income, it will manifest next year when they file their taxes and true everything up in April," said finance department Secretary Larry Walther.

Collections from tax returns and extensions in September increased by $7.7 million over a year ago to $19.7 million, which beat the forecast by $9.4 million.

• A $21.7 million or 10.4% increase in the sales and use tax collections from a year ago to $231.2 million, which was above the forecast by $18.7 million or 8.8%.

Last month, there was a very high growth in both retail and motor vehicle sales tax collections, "a mixed story" in the other categories of sales tax collections, and "restaurants and travel are still down from a year ago," said Shelnutt.

Retail sales tax collections increased by $15 million over a year ago to $91.7 million and motor vehicle sales tax collections increased by $4.2 million over a year ago to $30.8 million, he said.

• A $10.5 million or 11.9% decrease in corporate income tax collections over a year ago to $77.6 million, but they were $1.8 million or 2.4% above the forecast.

• A $2.2 million or 13.4% increase in tobacco tax collections over a year ago to $18.8 million, which beat the forecast by $3.4 million or 21.9%.

Monthly changes in tobacco collections can be attributed to uneven patterns of stamp sales to wholesale purchasers.

The Legislative Council and Joint Budget Committee will hold budget hearings starting Oct. 13 through Nov. 12 in advance of the regular legislative session that starts Jan. 11. In that regular session, the Legislature will determine the budget for fiscal 2022, which starts July 1.

The governor's proposed budget for fiscal 2022 will be presented to lawmakers Nov. 10, said Scott Hardin, a spokesman for the finance department.

Enrollment in the state's total Medicaid program, including the Medicaid expansion called Arkansas Works, has grown throughout the pandemic according to Department of Human Services' figures. Arkansas' first positive coronavirus case was announced March 11.

The total Medicaid enrollment was 899,503 on March 1; 903,095 on April 1; 926,015 on May 1; 946,959 on June 1; 953,681 on July 1; 964,642 on Aug. 1; and 972,671 on Sept. 1, according to the department.

The Arkansas Works portion was 250,233 on March 1; 250,336 on April 1; 261,975 on May 1; 271,553 on June 1; 275,162 on July 1; 280,678 on Aug. 1; and 285,200 on Sept. 1, according to the department.

Because of the public-health emergency resulting from the coronavirus pandemic, the Medicaid program's finances have been assisted by the federal government increasing the match rate for the traditional Medicaid program by 6.2 percentage points, retroactive to Jan. 1, to 77.62%. The federal government covers 90% of the cost of the Medicaid expansion program, while the state picks up 10% of that cost.

On Jan. 1, the state's top individual income tax rate is to dip from 6.6% to 5.9% under Act 182 of 2019. The 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 and then by $48.5 million more in fiscal 2021. It is projected to ultimately reduce general revenue by $97 million a year.

On Jan. 1, the state's top corporate tax rate 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 cuts would reduce general revenue by $9.8 million in fiscal 2021, gradually leading to $39.3 million in fiscal 2023.

Graphs showing Arkansas sources of general revenue.
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