Fueled by better-than-expected individual and corporate income and sales tax collections, state government's general revenue tax collection in September increased by $103.9 million, or 15.7%, over the same month a year ago to $765.3 million.
Last month's collection beat the state's forecast for the month by $179.2 million or 30.6%, the state Department of Finance and Administration said Monday in its monthly revenue report.
September's haul is a record for the month, outdistancing the previous record of $664.5 million in September 2019, said Whitney McLaughlin, a tax analyst for the finance department.
Quarterly individual income and corporate income tax payments in September accounted for much of what exceeded the forecast, the finance department reported.
The state's two largest sources of general revenue are individual income taxes and sales and use taxes.
Tax refunds and some special governmental expenditures are taken off the top of the total collection, leaving a net amount that state agencies are allowed to spend. Net general revenue helps finance state-supported programs such as public schools, human services programs, public colleges and universities, and prison programs.
The net in September increased by $98.5 million or 16.6% over the same month a year ago to $690.3 million and exceeded the forecast by $162.7 million or 30.8%.
Gov. Asa Hutchinson said Monday the state has exceeded its general revenue forecasts for 31 consecutive months, dating back to March 2019.
"This affirms that our economy continues to improve as we emerge from the COVID-19 pandemic, and that our decision to keep the economy open for business was important for our families and protected worker's income," the Republican governor said in a written statement.
"The surplus trend line puts Arkansas in good position to have another gradual reduction in the income tax rates."
FISCAL YEARS COMPARED
September is the third month of fiscal 2022, which started July 1 and ends June 30, 2022.
During the first three months of fiscal 2022, total general revenue declined by $39 million or 2% from the same period in fiscal 2021 to $1.95 billion, but exceeded the forecast by $282.8 million or 16.9%.
Comparing fiscal 2022's total collection with fiscal 2021's totals is distorted because the state shifted its individual income tax filing and payment deadline in 2020 from April 15 to July 15 to coincide with the federal government's shift of these deadlines amid the coronavirus pandemic, the finance department noted.
During the first three months in fiscal 2022, net general revenue declined by $19.1 million or 1.1% below the same period in fiscal 2021 to $1.72 billion, but beat the forecast by $249.1 million or 1.1%.
John Shelnutt, the state's chief economic forecaster, said the collections in September and in the first three months of fiscal 2022 "indicate a mix of continued expansion in the state economy and high-growth contributed from rebound in the sectors hardest hit during the limited-business operating stage of the pandemic."
"Payroll withholding growth is nearly double the pre-pandemic multiyear average and is broad based across goods- and service-producing sectors," he said.
Gains in sales tax collections gains also are broad-based, indicating a response to general expansion and not reliance on stimulus cash payments at this stage, he said.
"The initial V-shaped economic recovery in Arkansas has been joined by the remaining sectors that were most impacted," Shelnutt said in a written statement.
Although moderation in general revenue tax collection growth is expected in the second half of fiscal 2022 and on into fiscal 2023 with all sectors recovered, the combination of sector gains in the first quarter was impressive for breadth and speed, Shelnutt said.
"The speed of adjustment exceeds prior episodes of recovery from normal recessions," he said. "But the somewhat faster pace in Arkansas compared to the U.S. average is a familiar pattern for the state. The catchup by other large states and the national average may also come faster this time."
BUDGET AND TAXES
Earlier this year, the Republican-dominated General Assembly and Hutchinson enacted a general-revenue budget for fiscal 2022 totaling $5.849 billion, including a $17.1 million allocation to the restricted reserve fund. The budget also projects a surplus of $17 million.
The current forecast for fiscal 2022 anticipates all categories of the Revenue Stabilization Act, which distributes the money to state-supported programs, will be fully funded, said finance department spokesman Scott Hardin.
The fiscal 2022 budget is based on an estimated net general revenue forecast of $6.06 billion before the Legislature's tax cut measures collectively reduce projected net general revenue by $203.1 million, according to legislative records.
The tax cut impacts include the state giving up $179 million by not levying income taxes on forgiven loans through the federal Paycheck Protection Program, $3 million from not levying income taxes on unemployment benefits and other tax cuts.
In fiscal 2021, the general revenue budget totaled $5.899 billion, Hardin said.
Arkansas' surplus set a record in fiscal 2021, totaling $945.7 million, which is more than twice the previous record of $409.3 million in fiscal 2007, according to finance department records.
The Long Term Reserve Fund, which Hutchinson has called the state's savings account, has been the primary beneficiary of the surplus. Its balance is now $1.2 billion, Hardin said.
Hutchinson hasn't announced when the special session on cutting income taxes will be held.
Among other things, Hutchinson and legislative leaders have been weighing proposals to reduce the top rate to 5.5% within a year or two and then phase in a further cut to 4.9%, and combine the low and middle income tax tables into one for people with net taxable income up to $82,000 a year.
A law enacted in 2019 cut the top rate from 6.9% to 6.6% on Jan. 1, 2020, and to 5.9% on Jan. 1, 2021.
A consultant hired by the Bureau of Legislative Research, Moody's Analytics, is slated to present a report to the House and Senate Revenue and Taxation Committees this morning. The proposed changes examined by the consultant include a reduction in the top individual income tax rate to 5.5% as well as consolidation of the low- and middle-income tax tables, the consultant said in its written report.
"Moody's Analytics estimates that an enactment of these changes would reduce the amount of individual income tax collected over the next 10 years by approximately $2.6 billion versus a current baseline," the report said. "All else equal, it is estimated that this would add nearly $947 million to the Arkansas economy over the same time period."
SEPTEMBER'S COLLECTIONS
According to the finance department, September's general revenue included:
• A $12.9 million or 4% increase in individual income tax collections over the same month a year ago to $332.8 million, which exceeded the forecast by $80 million or 31.7%.
Withholding is the largest category of individual income taxes.
Collections from withholding increased by $15.9 million over the same month a year ago to $217.4 million and beat the forecast by $17.9 million or 7.9%.
The increased withholding reflects more people working and more people working longer hours, said Shelnutt.
"The greatest gains in payroll withholding were in those sectors experiencing later rebound from the pandemic -- restaurants, transportation and temporary help services," he said.
Collections from estimated payments dipped by $2.2 million from a year ago to $96.6 million, but exceeded the forecast by $51.1 million.
• $A 27.8 million or 12% increase in sales and use tax collections over the same month a year ago to $259 million, which beat the forecast by $23.3 million or 9.9%.
Most major reporting sectors of sales tax displayed high growth over the same month a year ago, reflecting continuing economic expansion in many sectors and rebound from later recovery in service sectors and restaurants, the finance department said.
Restaurant collections increased by 16% from $19.3 million in September 2020 to nearly $22.5 million last month, while personal services collections increased by 22% from $7.3 million in September 2020 to $8.9 million last month and transportation increased by 134% from $747,133.25 in September 2020 to $1.7 million last month, Hardin said, and
• A $62.4 million or 80.4% increase in corporate income tax collection over a year ago to $140 million, which exceeded the forecast by $72.4 million or 107.1%.
The quarterly estimated payments in corporate income tax collections totaled $131.7 million, which is $68.1 million above forecast.