Arkansas' general revenue collections in April dropped by $205.7 million, or 15.5% from the same month a year ago, to $1.1 billion, but beat the state's forecast by $66.7 million, or 6.3%.
The decline in collections compared with a year ago is largely the result of the tax cut package enacted in the Arkansas General Assembly's August special session, said John Shelnutt, the chief economic forecaster for the state Department of Finance and Administration.
The collections exceeded the forecast largely as a result of higher than expected corporate income tax collections for the month, he said Tuesday in releasing the finance department's monthly revenue report.
This year, the state's individual and corporate income tax filing and payment deadline for most of the state was April 18.
Because of tornadoes that hit the state on March 31, however, the deadline for people who live or have businesses in Pulaski, Lonoke and Cross counties was moved to July 31.
The extension includes 2022 returns for individuals, Subchapter S corporations, Subchapter C corporations, pass-through entities, fiduciaries and estates, partnerships and composite returns.
Shelnutt said Arkansas' economy is showing high growth and "no evidence of slowing down at this point."
Employment improved for the sixth consecutive month in March, and the state's monthly unemployment rate fell to an all-time low of 3%, state officials reported on April 21. Unemployment was down from 3.2% in February, according to a report from the Arkansas Division of Workforce Services. The previous record low unemployment rate was 3.1%, set a year ago in both March and April.
Arkansas' largest amount of general revenue collected in any April continues to be the $1.3 billion collected in April 2022, said Whitney McLaughlin, a tax analyst for the finance department.
Tax refunds and some special government expenditures are taken off the top of total general revenue collections, leaving a net amount that state agencies are allowed to spend up to their maximum distribution under the state's Revenue Stabilization Act.
The state's net general revenue in April fell by $262.9 million, or 23.4 % below the same month a year ago, to $862.4 million, but exceeded the state's Nov. 10 forecast by $123.5 million, or 16.7 %.
"April is a critical month for income tax collection and refund claims," Finance and Administration Department Secretary Larry Walther said in a written statement. "We passed the test in good shape with $123 million above forecast overall."
April is the tenth month of fiscal 2023, which started July 1 and ends June 30.
During the first ten months of fiscal 2023, the state's total general revenue collections increased by $88.5 million, or 1.2%, over the same period in 2022, to $7.3 billion, and exceeded the state's Nov. 10 forecast by $356.4 million, or 5.1%.
So far in fiscal 2023, the state's net general revenue has dropped by $163.1 million, or 2.6%, from the same period in fiscal 2022, to $6 billion, but has outdistanced the state's forecast by $430.2 million, or 7.7%.
In the 2022 fiscal session, the General Assembly and then-Gov. Asa Hutchinson authorized a general revenue budget of $6.02 billion for fiscal 2023 -- up by $175.1 million from fiscal year 2022's general revenue budget, with most of the increase going to public schools and human service programs.
The finance department's Nov. 10 forecast projects a general revenue surplus of $598.1 million at the end of fiscal 2023.
POTENTIAL BILLION DOLLAR SURPLUS
Shelnutt said he expects the state's general revenue surplus to reach $1 billion at the end of fiscal 2023, as long as collections in May and June reach the state's projections.
He said the state's employment figures were revised up significantly after the general revenue forecast was released on Nov. 10.
"It was a more robust economy than what we were" projecting, he said.
In the Aug. 9-11 special session, the Legislature and Hutchinson enacted a four-pronged tax cut package that the finance department projected would reduce state general revenue by $500.1 million in fiscal 2023, $166.6 million in fiscal 2024, $69.5 million in fiscal 2025, $18.4 million in fiscal 2026 and $8.4 million in fiscal 2027.
The package accelerated a reduction of the state's top individual income tax rate from 5.5% to 4.9%, retroactive to Jan. 1, 2022, and a cut in the state's top corporate income tax rate from 5.9% to 5.3%, effective Jan. 1, 2023.
The package also granted a temporary, nonrefundable income tax credit of $150 for individual taxpayers with net income up to $87,000 and $300 for married taxpayers filing jointly with net income up to $174,000, and adopted a federal depreciation schedule for businesses.
The special session came after the state reported accumulating a record general revenue surplus of $1.628 billion in fiscal 2022, which ended June 30. In fiscal 2021, the state reported collecting a $945.7 million general revenue surplus.
In the regular session that adjourned Monday, the General Assembly and Republican Gov. Sarah Huckabee Sanders enacted a general revenue budget that will increase by $177.7 million to $6.2 billion in fiscal 2024, which starts July 1 and ends June 30, 2024.
Most of the increased general revenue will be allocated to education and corrections programs.
The Legislature and Sanders also enacted a measure that would authorize the transfers of $1.4 billion in unallocated and unobligated state funds, including $1.3 billion from the general revenue allotment reserve balance, and up to $380.6 million in surplus funds in fiscal 2023 largely to set-aside accounts in the restricted reserve fund for nearly 30 projects.
Among other projects, Act 561 will set aside funds in the restricted reserve fund for future prison construction, the state's share of school building costs, state matching funds for federal Infrastructure Investment and Jobs Act grants, and the University of Arkansas for Medical Sciences' National Cancer Institute designation effort.
The state's forecast projects net general revenue of $6.59 billion for fiscal 2024, so the proposed budget of $6.2 billion would leave a surplus of $391.1 million at the end of fiscal 2024. That general revenue surplus projection doesn't factor in individual and corporate income tax cuts and other tax cuts that the Legislature enacted in this year's regular session, said Scott Hardin, a spokesman for the finance department.
Shelnutt said the finance department will release a revised general revenue forecast on May 17 for fiscal years 2023, 2024 and 2025.
On April 10, Sanders signed into law a bill that cuts the state's top individual income tax rate from 4.9% to 4.7% and the state's top corporate income tax rate from 5.3% to 5.1%, retroactive to Jan. 1, 2023.
About 1.1 million individual taxpayers with taxable income greater than $24,300 will receive a tax reduction under Senate Bill 549 by Sen. Jonathan Dismang, R-Searcy, that's now Act 532, according to the finance department.
The measure is projected by the state finance department to reduce state general revenue by $186 million in fiscal 2024 and $124 million in fiscal 2025. The department said the measure's projected revenue impact assumes that employee withholding will be adjusted by employers on or after June 1, 2023. The measure will reduce state general revenue more in fiscal 2024 than in fiscal 2025 because it is retroactive to Jan. 1, 2023.
On April 10, Sanders also signed into state law House Bill 1045 by Rep. Howard Beaty, R-Crossett, which will gradually phase out the "throwback rule" on business income of multistate corporations. The bill is now Act 485.
The gradual phase-out will begin in the tax year starting on or after Jan. 1, 2024, and be complete in tax year 2030 under the measure. The measure is projected by the finance department to reduce general revenue by $10.6 million in fiscal year 2024 and ultimately reduce general revenue by $74 million a year in fiscal year 2030 and thereafter.
According to the finance department, April's general revenue included:
A $207.4 million, or 25.6%, reduction in individual income tax collections from the same month a year ago, to $603.3 million, which was $0.9 million, or 0.1 %, below forecast.
Withholding is the largest category of individual income collections.
Withholding collections increased by $8.8 million, or 2.9%, over a year ago, to $316 million, which exceeded the state's forecast by $14.6 million.
Collections from returns and extensions dropped by $193.3 million from a year ago, to $235.8 million, and lagged the state's forecast by $19.9 million.
Collections from estimated payments fell by $23 million from a year ago, to $51.5 million, but beat the state's forecast by $4.4 million.
A $16.3 million, or 6%, increase in the state's sales and use tax collections from the same month a year ago, to $287.8 million, which outdistanced the state's forecast by $5.3 million, or 1.9%.
Shelnutt said a 6% increase in sales and use tax collections is above the state's long-term averages, but "it is slowing down some."
Results by major reporting sectors of sales tax and use collections displayed mixed results compared with a year ago, but there was elevated growth of $7.8 million, or 7.2%, in the retail trade sector's collections.
Motor vehicle sale tax collections declined by $2.6 million, or 8.2%, from a year ago, after gains in recent months.
A $11.8 million, or 5.6%, decrease in corporate income tax collections from a year ago, to $198.2 million, which still exceeded the state's forecast by $62.1 million, or 45.6%.