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State's revenue in December off $8.3M from '19

Decline still beats forecast;sales and use collections up by Michael R. Wickline | January 6, 2021 at 4:59 a.m.
(Democrat-Gazette photo illustration)

With one less payday than in the same month a year ago, Arkansas' general revenue tax collections in December slipped by $8.3 million, or 1.4%, from a year ago to $605.3 million.

But the month's total collections beat the state's April 2 forecast by $42.9 million, or 7.6%.

The state's record for general revenues collections in any December continues to be the $613.6 million collected in 2019, said Whitney McLaughlin, a tax analyst for the state Department of Finance and Administration.

While the state's individual income tax collections in December declined from a year ago, the state's sales and use tax collections increased slightly last month over a year ago, the Finance Department reported Tuesday in its monthly revenue report.

Individual income tax and sales and use tax collections are state government's two largest sources of general revenue tax collections, and their collections exceeded the state's forecast for both last month.

The state's general revenue report for December "shows that our economy is coming back more quickly than anticipated and that we are creating new jobs for the jobs that have been lost," Gov. Asa Hutchinson said Tuesday afternoon in a written statement. "The report also reflects our conservative approach to managing the state budget is paying dividends."

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

The net in December fell by $17.2 million, or 3.1%, from the same month a year ago to $530.3 million, but it exceeded the state's forecast by $36 million, or 7.3%.

Statistics released in mid-December showed that Arkansas' unemployment rate remained unchanged at 6.2% in November and was slightly below the U.S. jobless rate of 6.7% announced earlier in December. They also indicated that job growth in Arkansas continued to improve slightly, though the pace had slowed over the past few months.

FISCAL 2021

December is the sixth month of fiscal year 2021, which started July 1.

During the first sixth months of fiscal 2021, total general revenues increased by $320.7 million, or 9.5%, over the same period in fiscal 2020 to $3.6 billion and outdistanced the state's April 2 forecast by $348.7 million, or 10.4%.

So far in fiscal 2021, individual income tax collections increased by $177.2 million, or 11.1%, over the same period in fiscal 2020 to $1.7 billion, beating the forecast by $155.2 million, or 10.3%.

During the first six months in fiscal 2021, sales and use tax collections increased by $101.8 million, or 7.9%, over the same period in fiscal 2020 to $1.39 billion and outdistanced the state's forecast by $108.9 million, or 8.5%.

So far this fiscal year, the state's net general revenues increased by $257.6 million, or 8.7%, over the same period in fiscal 2020 to $3.2 billion, exceeding the state's forecast by $319.4 million, or 11%. These results include net collection increases tied to the state shifting its individual income tax filing and payment date from last April 15 in fiscal 2020 to last July 15 in fiscal 2021, according to the Finance Department.

"In dollar terms, the $319.4 million that year-to-date general revenue net available collections are above forecast this fiscal year is higher than any comparable mid-year collections going back to at least FY1991," according to McLaughlin.

The finance department on April 2 of this year cut the state's forecast for net general revenues in fiscal 2021 by $205.9 million to $5.68 billion, citing a projected recession triggered by the coronavirus pandemic.

In its fiscal session in April, the Arkansas General Assembly enacted a $5.89 billion general revenue budget for fiscal 2021. The April forecast will provide $5.68 billion in general revenue for that budget, leaving $212.2 million of that budget unfunded.

John Shelnutt, the state's chief economic forecaster, said Tuesday that he expects to "see quite a bit of slowing" in the state's individual income tax collections for the rest of fiscal 2021.

"It will be our first look at tax year 2020 liability, so both individuals and partnerships will be telling us that it was not that a great of a year," due to the effects of the pandemic, he said.

In addition, the state's top individual income tax rate dropped from 6.6% to 5.9%, effective on Friday, after dipping from 6.9% to 6.6% on Jan. 1, 2020, under Act 182 of 2019.

State officials originally projected Act 182 would reduce revenue by $25.6 million in fiscal 2020; $48.5 million more in the fiscal 2021; and $22.9 million more in fiscal 2022.

Asked about whether Hutchinson should increase the state's general revenue forecast for fiscal 2021, state Rep. Joe Jett, R-Success, said that "I think it would be ill-advised to go ahead and do anything drastic before we get around those numbers," comparing the income tax filers in fiscal 2020 and fiscal 2021 since the individual income filing deadline was shifted last year from April 15 to July 15.

Sen. Larry Teague, D-Nashville, said he supports authorizing more spending on education and health care programs in fiscal 2021.

Hutchinson said Tuesday that he was confident of the state's economic recovery, adding the federal stimulus package should help maintain positive momentum.

"In terms of the surplus, this [$319.4 million] cushion is needed for the next fiscal year, which could be tight budget wise," he said. "Beyond that, it is too early to make decisions on any surplus [from fiscal 2021]."

The General Assembly will convene for its regular session starting Tuesday.

In November, Hutchinson proposed a $5.84 billion general revenue budget for fiscal 2022, a $161 million increase over the current funded budget. Most of the increased general revenue would go to human services, public schools and colleges and universities.

The governor also proposed the General Assembly approve $50 million a year in income tax cuts for moderate or low-income Arkansans and reduce the top rate from 5.9% to 4.9% for new residents for five years with the eventual aim of reducing the top rate for everybody else to 4.9% over a five-year period. Cutting the top tax rate to 4.9% is projected by state officials to reduce general revenue by $275.6 million a year when fully implemented.

Hutchinson also called for lawmakers to cut the sales tax from 6.5% to 3.5% on used vehicles priced between $4,000 and $10,000. Used vehicles priced at less than $4,000 are exempt from the tax.

In November, the governor proposed devoting $100 million of the state's $240 million surplus, collected prior to fiscal 2021, to the state's long-term reserve fund, which he has called the state's saving account.

The state's long-term reserve fund balance is now $209.9 million after a $25 million transfer from the property tax relief fund to the long-term reserve fund on Dec. 31, said Scott Hardin, a spokesman for the Finance Department.

DECEMBER

According to the Finance Department, December's general revenue included:

• A $27.1 million, or 9.8%, dip in individual income tax collections from the same month a year ago to $249.7 million, which beat the state's forecast by $19.9 million, or 8.7%.

Withholdings are the largest category of individual income taxes.

They dropped by $28 million, or 11.2%, from the same month a year ago to $222.3 million, but exceeded the forecast by $16.6 million. They declined because December had one less payday than the same month in 2019, said Shelnutt, the state's chief economic forecaster.

In November, the state's individual income tax collections increased with the help of one more payday than in the same month a year ago.

• A $4.8 million, or 2.1%, increase in sales and use tax collections from December of 2019 to $229.7 million, exceeding the state's forecast by $5.2 million, or 2.3%.

These sales and use tax collections in December largely reflect sales to consumers in November for which sales taxes were remitted to the state last month.

The state's retail sales tax collections last month increased by $5.7 million over a year ago, and the state's motor vehicle sales tax collections increased by $3.5 million over a year ago, Shelnutt said.

The state's sales tax collections from utilities in December declined by $1.7 million from a year ago reflecting billings made two months ago due to the milder weather in the state, he said.

The state's sales tax collections from food services and restaurants declined by $1.6 million, or 8.5%, from a year ago.

• A $16.4 million, or 22.1%, increase in corporate income tax collection over a year ago to $90.5 million, which beat the state's forecast by $18.3 million, or 25.4%, largely based on a boost in estimated payments.

"What we are seeing is a lot of other states saw the same bump up," Shelnutt said. "Some of the states are commenting that it is larger firms doing well, not small ones."

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