JANUARY 2025 STATE REVENUE REPORT

JANUARY STATE REVENUE DECLINES, INCLUDING DROPS IN SALES TAX AND INCOME TAX

The Arkansas Department of Finance and Administration (DFA) released the state’s January revenue report today, showing that Net General Revenue totaled $33.1 million, or 5%, less than the same time last year. While the state has grown accustomed to lower total revenue collections due to income tax cuts, the January report marks the first time that Sales and Use Tax collections have also fallen below the previous year’s levels—despite no reductions in Sales and Use Tax rates.

January Sales and Use Tax collections totaled $3.9 million, or 1.3%, less than the same month last year and were $9.4 million, or 3%, below the forecast. Since Sales and Use Tax collections are based on sales prices, collections typically rise with inflation, which has been above normal levels this year. The fact that revenues are not keeping pace with inflation may indicate a shrinking tax base, which could signal potential economic concerns. The report did not include any explanation or commentary concerning the decline in Sales and Use Tax.

The report indicated that total January revenue exceeded forecast by $15.3 million, or 2.5%, driven by higher-than-expected Individual and Corporate Income Tax collections, despite overall revenues falling below last year’s levels. This brings the total “surplus” of revenue above forecast for the year to $44.0 million, or 1.1%. Five months remain in this fiscal year to reach the previously projected year-end surplus of $280 million.

Individual Income Tax collections exceeded forecast by $13.7 million, or 4.1%, despite DFA noting that there was one less payroll cycle for Withholding Income Tax.

Corporate Income Tax decreased by $12.4 million compared to last year but still surpassed the forecast by $11.7 million. Given its volatility, Corporate Income Tax is notoriously difficult to predict on a monthly basis. For the fiscal year, collections remain $7.1 million, or 2.4%, below forecast after accounting for tax cuts.

The State will finalize revenue forecasts and budgets as the current legislative session progresses. The decline in Sales and Use Tax collections should be a topic of interest following the January report, particularly given that revenues are not keeping pace with inflation. There is the possibility of a collections or refund anomaly rather than economic factors that are impacting the Sales and Use Tax. An educated final economic and revenue forecast must include that information.