Arkansas' general revenue collections down $39.3 million in January from 2023, still beat forecast

Arkansas' general revenue collections in January declined by $39.3 million, or 4.9%, from the same month a year ago to $767.7 million, but still beat the state's forecast by $36.7 million, or 5%.

The state's general revenue collections in January dropped from a year ago primarily due to lower individual income tax collections, the state Department of Finance and Administration said Friday in its monthly revenue report.

The decrease in individual income tax collections in January from a year ago is largely a result of income tax cuts, a finance department official said.

The state's two largest sources of general revenue are individual income taxes and sales and use taxes.

"January results reflect a stable Arkansas economy that is normalizing after the impact of significant stimulus in recent years," Department of Finance and Administration Secretary Jim Hudson said Friday in a written statement.

"State revenue collections remain favorable relative to our forecast, and we are positive in our outlook for the five months remaining in Fiscal Year 2024," he said.

Fiscal 2024 started July 1 and ends June 30, 2024.

The largest amount of general revenue the state has collected in the month of January remains the $807 million collected in January 2023, 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 the maximum authorized by the state's Revenue Stabilization Act. That act distributes general revenue to state-supported programs such as public schools, the state's universities and colleges, human service programs, and prisons and other corrections programs.

In January, the state's net general revenue dropped by $61.8 million, or 8.5%, from the same month a year ago to $667.3 million but beat the state's May 17 forecast by $14.8 million, or 2.3%.

During the 2023 regular session, the Republican-controlled General Assembly and Gov. Sarah Huckabee Sanders authorized a $177.7 million increase in the state's general revenue budget to $6.2 billion in fiscal 2024, with most of the increase allocated to education and corrections programs.

FISCAL YEAR RESULTS

During the first seven months of fiscal 2024, the state's total general revenue declined by $91.5 million, or 1.8%, from same period in fiscal 2023 to $4.86 billion, but still beat the state's May 17 forecast by $287.4 million, or 6.3%.

So far in fiscal 2024, the state's net general revenue dropped by $243.9 million, or 5.6%, from the same period in fiscal 2023 to $4.09 billion, but exceeded the state's forecast by $231.2 million or 6%.

In its revised general revenue forecast, the finance department on Thursday projected a general revenue surplus of $240.5 million at the end of fiscal 2024.

In its May 17 general revenue forecast, the finance department initially projected a $423.3 million general revenue surplus at the end of fiscal 2024. After income tax cuts enacted by the Legislature and Sanders during the Sept. 11-14 special session, finance department officials said at that time the projected surplus was reduced to about $174 million in fiscal 2024.

"The major change is the revised forecast takes into account the fiscal impact of the tax cuts," Hudson said Thursday. "[But] we are adding back in a little bit of the over-achievement [in tax collections so far in fiscal 2024]. Not all of it, because we want to see how the tax cuts play through the system early on in the year, and then we have a little bit better in terms of overall economic performance in the state ... and then there is a small [deduction] for just a little bit higher cost ... for recycling income tax credits."

During the Sept. 11-14 special session, the Legislature and Sanders enacted an income tax cut package that trimmed the state's top individual and corporate income tax rates and created a temporary nonrefundable income tax credit for low-income andmiddle-income taxpayers.

Act 6 cut the state's top individual income tax rate from 4.7% to 4.4% and the state's top corporate income tax rate from 5.1% to 4.8%, starting in tax year 2024, according to the finance department.

Cutting the state's top individual income tax rate from 4.7% to 4.4%, effective Jan. 1, 2024, is projected by the finance department to reduce state general revenue by $75 million in fiscal 2024 and by $150 million in fiscal 2025. Trimming the state's top corporate income tax rate from 5.1% to 4.8%, effective Jan. 1, 2024, is projected to reduce state general revenue by $17.2 million in fiscal 2024 and by $34.5 million in fiscal 2025.

The state Department of Finance and Administration has projected the temporary income tax credit will reduce state general revenue by $156.3 million in fiscal 2024.

The Legislature will convene in a fiscal session starting April 10 to consider enacting the state's Revenue Stabilization Act for fiscal 2025. The Joint Budget Committee's budget hearings in advance of the fiscal session will be from March 6-8, according to the Bureau of Legislative Research. The governor presents the proposed general revenue budget on the first day of budget hearings.

JANUARY'S RESULTS

According to the finance department, January's general revenue included:

* A $61.9 million or 14% decrease in individual income tax collections from a year ago to $379.8 million, which fell $2.5 million or 0.7 % below the state's forecast.

Withholding tax collections are the largest individual income tax category.

Withholding collections increased by $4.9 million or 1.8% over a year ago to $281 million, but fell $1.9 million below the state's forecast.

Collections from estimated payments dropped by $56.5 million from a year ago to $85 million, which was $1.2 million below forecast.

Collections from returns and extensions declined by $10.4 million from a year ago to $13.8 million, which beat the state's forecast by about $600,000.

* An $8.2 million or 2.8% increase in the state's sales and use tax collections over a year ago to $302.3 million, which exceeded the state's forecast by $5.2 million, or 1.7%.

Major reporting sectors of sales tax displayed mostly higher growth over the prior year, reflecting continued economic expansion in many sectors.

The state's sales tax collections in the manufacturing sector increased $5.0 million, or 27.3%, over a year ago, and the state's retail sector sales tax collections rose $1.0 million, or 0.8%, over a year ago, while the state's motor vehicle sales tax collections declined by about $400,000, or 1.2% from a year ago.

* A $17.6 million, or 48%, increase in the state's corporate income tax collections over a year ago to $54.3 million, which outdistanced the state's forecast by $36.1 million, or 198.5%. Corporate income tax collections from estimated payments bolstered January's collections.

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