APRIL 2024 REVENUE REPORT

STATE SURPLUS JUMPS AGAIN AS APRIL REVENUE OUTPACES FORECAST

Today, the Arkansas Department of Finance and Administration (DFA) reported that April Net General Revenue contributed $173 million to the fiscal year surplus, now totaling $423.6 million with two months of collections remaining. This report comes as the legislature prepares to close out the fiscal session, possibly today. With only minor budget increases this fiscal session, the financial stage is set for the 2025 regular session of the General Assembly. Calls for tax cuts are likely to intensify, and requests for more substantial budget increases can be anticipated.

Individual Income Tax collections increased $3.4 million over last year while absorbing recent tax cuts. Collections exceeded forecast by $145.2 million, or an astonishing 31.5%. DFA reported that although tax withholding from payrolls decreased by $11.3 million due to tax cuts, this was offset by a $14.7 million increase from other categories, including payments associated with 2023 returns that have been recently processed. DFA also noted that Individual Income Tax refunds exceeded forecast by $33.6 million, resulting in a decrease in total revenue in April.

Corporate Income Tax collections totaled $173.4 million, exceeding the forecast by $56.0 million or 32%. History tells us that Corporate Income Tax collections are volatile and difficult to predict due to corporate financial reporting and timing. This $56.0 million addition could disappear before the end of the fiscal year due to corporate payment timing. Only a closer look at individual returns might give a clue as to what is happening. A small group of corporations pay the bulk of Corporate Income Tax, so this might just be the current behavior or financial reporting of one or a few corporations rather than a sign of economic success.

April Sales and Use Taxes continued to exceed last year's collections, with collections also surpassing the forecast by $22.4 million or 8%. DFA reported that, "Major reporting sectors of Sales Tax displayed mixed results over last year," indicating potential fluctuations in different categories. However, specifics were not provided in the report. Throughout most months of this fiscal year, DFA has consistently reported that Sales Tax was up in all major sectors, often interpreting it as a sign of good economic performance. The mention of a new slowing in one or more sectors suggests a nuanced change in the economic landscape.

As the Governor and legislature commence financial planning for the 2025 legislative session, they do so with a solid foundation. The State has bolstered Rainy Day and other backup funds from surpluses to fortify the State’s finances. However, sustainable tax cuts must be financed with future revenue collections. Some economic pundits continue to beat the recession warning drum. We should watch future predictions and revenue forecasts to get a better understanding of how much taxes may be cut. We can also watch the jousting as alternative tax cuts and spending proposals compete!

The April 2024 revenue report may be viewed and downloaded here.

Arkansas Democrat Gazette

5/2/24

State Tax Revenue Falls 5.1% in April

Arkansas Business

5/2/24

Kelly SullivanJune 17, 2024