Fueled by surging income and sales and use tax collections, the state's general revenue in December rose by $114.4 million, or 18.9%, over the same month a year ago to $719.6 million.
December's revenue beat the state's latest general revenue forecast by $56.8 million, or 8.6%, the state Department of Finance and Administration said Tuesday in its monthly revenue report.
Last month's general revenue collection is a record for the month of December, exceeding the previous high of $613.6 million collected in 2019, said Whitney McLaughlin, a tax analyst for the finance department.
Gov. Asa Hutchinson said Tuesday, "Almost every sector of our economy is hitting on all cylinders and that is reflected in the very robust sales tax collections for last month."
"The sales tax numbers show determined consumer confidence and that is important as we navigate through the Omicron surge," the Republican governor said in a written statement, referring to last month's 19.6% increase in sales and use tax collection compared with the same month a year ago.
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 to the amounts outlined in the state's Revenue Stabilization Act.
The Revenue Stabilization Act prioritizes the distribution of state general revenue to state-supported programs such as public schools, human services, prisons, and colleges and universities.
The net in December increased by $115.8 million, or 21.8%, over the same month a year ago and outdistanced the state's Dec. 16 forecast by $52.1 million, or 8.8%.
December is the sixth month of fiscal 2022, which started July 1, 2021, and ends June 30.
The finance department revised the revenue forecast for fiscal 2022 and fiscal 2023 on Dec. 16 to factor in individual and corporate income tax cuts enacted during the General Assembly's Dec. 7-9 special session and expectations for slightly higher economic growth.
"The $52.2 million surplus for December is good news and builds confidence that we will meet the surplus projection for the end of the year," Hutchinson said in his written statement.
"We should also remember that the surpluses not only benefit the state but the counties and cities benefit as well," he added.
Early last year, the General Assembly enacted a fiscal 2022 general revenue budget totaling $5.84 billion, including a $17.1 million allocation to a restricted reserve fund.
The state's Dec. 16 forecast projects a $264.4 million general revenue surplus at the end of the current fiscal year.
On Tuesday, Hutchinson is scheduled to present his proposed general revenue budget for fiscal 2023 to the Arkansas Legislative Council and Joint Budget Committee members.
The projected fiscal 2023 general revenue budget would be $6.01 billion, with an additional $54.9 million to transfer to what's now called the catastrophic reserve fund -- formerly the long-term reserve fund -- that now has about $1.2 billion.
The General Assembly will consider enacting the fiscal 2023 budget during its fiscal session starting Feb. 14.
The income tax cuts enacted in the Dec. 7-9 special session are projected by the finance department to reduce general revenue by $135.25 million in fiscal 2022, then gradually increase from $307.4 million in fiscal 2023 to $497.7 million in fiscal 2026.
The income tax cuts that became effective Saturday include a reduction in the top individual income rate from 5.9% to 5.5%; a consolidation of the state low- and middle-income tax tables; and the creation of a nonrefundable income tax credit for low-income taxpayers.
The top individual income tax rate would gradually decline to 4.9% on Jan. 1, 2025, under certain conditions.
The laws also envision adjusting the standard income tax deduction by the cost of living in future tax years and gradually reducing the top corporate income tax rate from 5.9% to 5.3% on Jan. 1, 2025, under certain conditions.
According to the finance department, the state's general revenue collections in December included: A $24.5 million, or 9.8%, increase in individual income tax collections over December a year ago to $274.3 million, which exceeded the forecast by $16.7 million, or 6.5%.
Individual withholding tax revenue increased by $21 million, or 9.4%, over December a year ago to $243.3 million, which exceeded the forecast by $9.3 million.
The increased withholding revenue indicates more people are working, which is also reflected in employment figures and the decline in unemployment claims, said John Shelnutt, the state's chief economic forecaster.
Collections from estimated payments increased by $1.9 million over a year ago to $18.6 million, which beat the forecast by $4.2 million, and collections from returns and extensions increased by $1.6 million from a year ago to $12.4 million, which outdistanced the forecast by $3.2 million.
A $44.9 million, or 19.6%, increase in sales and use tax collections over December a year ago to $274.7 million, which beat the forecast by $13.4 million or 5.1%.
Among other things, sales and use tax collections from retail trade last month increased by $19.6 million, or more than 19%, compared with the same month a year ago, and sales and use tax collections from accommodation services, including restaurants, increased by $4.8 million, or 27.3%, over year ago, Shelnutt said.
Most of the state's sales and use tax collections in December are based on consumer and business purchases made in November.
"This [report] may pick up part of early Christmas shopping," Shelnutt said. "Frankly, households are in good financial shape so it does help explain that result. ... Holiday shopping will continue to show up in January results as well." A $46.4 million, or 51.2%, increase in corporate income tax collections over the same month a year ago to $136.9 million, which outdistanced the forecast by $24.7 million, or 22%. Most of the gain was concentrated in quarterly estimated payments.
Other states are seeing a similar surge in corporate income tax collections as a result of corporate profits running far head of expectations, said Shelnutt.
During the first six months of fiscal 2022, the total general revenue collection increased by $198.6 million, or 5.4%, over the same period in fiscal 2021 to $3.89 billion. These collections beat the state's Dec. 16 forecast by $56.8 million, or 1.5%.
Comparisons with year-ago collections remain somewhat distorted by the income tax filing and due date shift to July 15, 2020, from April 15, 2020, as a one-time change for pandemic relief efforts, which put two income tax filing dates in fiscal 2021, the finance department noted.
So far in fiscal 2022, net general revenue has increased by $195.3 million, or 6.1%, over the same period in fiscal 2021 to $3.41 billion, which has exceeded the latest forecast by $52.1 million, or 1.5%.
"The latest gains above forecast after the recent forecast revision bode well for meeting or exceeding projections for year-end surplus on June 30th," finance department Secretary Larry Walther said, referring to the department's projection of a $264.4 million surplus at the end of fiscal 2022.
Erica MacKellar, the fiscal affairs program principal for the National Conference of State Legislatures, said most states seem to be meeting or exceeding their tax collection forecasts.
"The economy has rebounded quicker than a lot of people expected and a lot of federal funds helped with that recovery as well," she said in a telephone interview from her Denver office.
There is cautious optimism among the states that their tax collections will continue to meet or exceed their forecasts, but there also is quite a bit of uncertainty about the future, MacKellar said.