DECEMBER 2024 STATE REVENUE REPORT

DECEMBER SALES TAX GROWTH MINIMAL BUT TOTAL REVENUE ABOVE FORECAST

The Arkansas Department of Finance and Administration (DFA) reported today that December Sales and Use Tax collections totaled $299.7 million, an increase of only $1.3 million over last December. This represents a modest growth of only 0.4%. However, collections exceeded the official forecast by $2.5 million, or 0.8%. 

Despite being one of the key holiday shopping months and occurring during a period of ongoing inflation, the Sales and Use Tax category is not demonstrating economic growth. Year-to-date Sales and Use Tax growth stands at 1.5%, which falls behind both reported inflation rates and the inflation being experienced by Arkansas consumers.

DFA reported that total December revenue exceeded the forecast by $17.8 million, or 2.9%. This brings the year-to-date surplus to $28.7 million halfway through the fiscal year. DFA projects a total surplus of $280 million by the end of the fiscal year.

DFA attributed the amount above forecast in December to be “primarily due to Individual Income Tax Collections.” Individual Income Tax Collections totaled $295.7 million, representing an increase of $1.7 million, or 0.6%, compared to last December, after absorbing recent tax cuts. DFA had anticipated a decline in collections from the previous December. Instead, collections exceeded the forecast by $35.2 million, or 13.5%.

Corporate Income Tax collections in December totaled $81.5 million, a decrease of $49.2 million, or 37.6%, compared to last year, after absorbing recent tax cuts. Collections were $22 million less than forecast. The forecast for Corporate Income Tax cuts appears to have been too low while the forecast for Individual Income Tax appears to have been high. However, Corporate Income Tax collections are known to be volatile in reporting periods, and this fluctuation could even out in the remainder of the fiscal year. Only an examination of major payors’ payments could give an indication of what to expect. Presumably, the DFA will monitor these trends closely as the year progresses.

It is good that revenue remains above forecast halfway through the fiscal year. It is also good that Individual Income Tax collections are offsetting shortfalls in Sales and Use Tax and Corporate Income Tax. With the Individual Income Tax Cuts fully absorbed and built into the forecast next fiscal year, the amount expected from Individual Income Tax may no longer be sufficient to offset a lack of economic growth in Sales and Use Tax or shortfalls in Corporate Income Tax.  

As the General Assembly convenes later this month to set fiscal policy for taxes and the budget for the next two fiscal years, they will likely be looking for a complete explanation of Sales and Use Tax Collections and how that growth has compared to inflation by industry categories to get an accurate idea of what to expect in the future. In an improving economy, Sales and Use Tax should exceed inflation. In addition, the General Assembly will likely be reviewing Corporate Income Tax collections against the forecast to determine if December collections were an anomaly or if collections are expected to align more closely with the forecast during the last six months of the year.

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