Bolstered by better-than-expected individual income and sales and use tax collections, Arkansas' general revenue in January increased by $60 million over the same month a year ago to $782 million and beat the latest forecast by $174.4 million.
Last month's surge in general revenue collection represented an 8.3% increase over collections in January 2021 and outdistanced the level projected in the state's Dec. 16 forecast by 28.7%, the state Department of Finance and Administration said Wednesday in its monthly revenue report.
January's general revenue collection of $782 million is a record for the month, beating the previous high of $722 million in January 2021, said Whitney McLaughlin, a tax analyst for the finance department.
Gov. Asa Hutchinson said Wednesday that the revenue report "illustrates that the Arkansas economy is growing and fast moving."
"Consumers are confident and the revenue report shows that our recent tax cuts have been absorbed without jeopardizing full funding of state services," the Republican governor said in a written statement.
Individual income taxes and sales and use taxes are state government's two largest sources of general revenue.
Last month's individual income tax collection was better than expected largely because of higher than forecast quarterly estimated payments, while the sales and use tax collections beat expectations mostly due to increased sales from the Christmas shopping season, said John Shelnutt, the state's chief economic forecaster.
Tax refunds and some special government expenditures are taken off the top of the total general revenue collection, leaving a net amount that state agencies are allowed to spend up the amounts authorized in the state's Revenue Stabilization Act.
The Revenue Stabilization Act prioritizes the distribution of general revenue to state-supported programs such as public schools, human services, prisons, and colleges and universities.
In January, net general revenue increased by $79.6 million, or 12.5%, over a year ago to $715.4 million and exceeded the forecast by $188.7 million, or 35.8%.
January is the seventh month of fiscal 2022, which ends June 30.
During the first seven months of fiscal 2022, total general revenue increased by $258.6 million, or 5.9%, over the same period in fiscal 2021 to $4.67 billion and beat the Dec. 16 forecast by $231.2 million, or 5.2%.
The finance department has noted that comparisons with year-ago collections are distorted by the shift of the individual income tax payment deadline in 2020 from April 15 to July 15 as a one-time change for pandemic relief efforts. This resulted in two income tax filing dates in fiscal 2021.
So far in fiscal 2022, net general revenue increased by $275 million, or 7.1%, over the same seven months in fiscal 2021, to $4.13 billion, and outdistanced the forecast by $240.8 million, or 6.2%.
During last year's regular session, the General Assembly and Hutchinson enacted a fiscal 2022 general revenue budget totaling $5.84 billion, including a $17.1 million allocation to a restricted reserve fund.
The forecast projects a $264.4 million surplus at the end of fiscal 2022.
Asked if the latest forecast is too conservative given that the surplus of $240.8 million so far in fiscal 2022 is close to the projection of a $264.4 million surplus by June 30, Hutchinson said, "When it comes to forecasting, I would rather be conservative and have a surplus than worrying about revenue being sufficient to fund state services."
Asked whether the state will dramatically exceed the projected surplus, Shelnutt said, "I think we will exceed the official forecast at the end of the year."
He said he's not sure how much the surplus will exceed projections because state officials will see how income tax filings and refund claims play out in the next few months. The state's individual income tax filing and payment deadline is April 15.
On Jan. 11, Hutchinson proposed a $194.6 million increase in the general revenue budget, to $6.04 billion, in fiscal 2023 that starts July 1, with most of the increase for the public schools and human service programs. The proposal envisions ending that fiscal year with a $174.4 million surplus.
In the fiscal session starting Feb. 14, the General Assembly will consider enacting a general revenue budget for fiscal 2023.
The individual and corporate income tax cuts enacted in the General Assembly's Dec. 7-9 special session are projected by the finance department to reduce general revenue by $135.25 million in fiscal 2022 and $307.4 million in fiscal 2023.
JANUARY REVENUE
Individual income tax collections last month increased by $44.5 million, or 11.1%, over January a year ago to $445.8 million and beat the forecast by $124 million, or 38.5%, according to the finance department.
Withholdings are the largest category of individual income tax collections. The withholdings increased by $37.5 million, or 13.4%, over a year ago to $318.5 million and beat the forecast by $14.4 million. The increased withholdings partly reflected one more Friday payday than a year ago and partly reflected underlying economic gains in the state, Shelnutt said.
Individual income tax collections from quarterly estimated payments increased by $3.9 million over a year ago to $114.7 million, but exceeded the forecast by $101 million.
Individual income tax collections from returns and extensions increased by $3.1 million from a year ago to $12.6 million and outdistanced the forecast by $8.6 million.
Meanwhile, the state's sales and use tax collections last month increased by $31.8 million, or 13.4%, over a year ago to $268.7 million, according to the finance department. These collections exceeded the forecast by $34.2 million, or 14.6%.
The finance department reported that the state experienced high sales tax revenue growth in retail trade, services and transportation compared with a year ago, but drops in sales tax revenue compared with a year ago in motor vehicle sales, utilities, and accommodation and food services, including restaurants. Accommodation and food services' sales tax collections dropped by $1 million to $16.8 million last month.
"The gain was mainly at retail related to the Christmas shopping season," Shelnutt said.
Sales tax collections from the retail trade sector increased in January by $23.7 million, or 24.8%, over a year ago to $119.2 million, he said. Most of the state's sales tax collections in January were from purchases made in December.
In January, the state's corporate income tax collections declined by $21.9 million from a year ago to $29.2 million, but beat the forecast by $11.1 million.
These collections exceeded the forecast largely because of the gain in quarterly corporate estimated payments, according to the finance department.