MARCH 2025 STATE REVENUE REPORT
STATE REPORTS DECREASED SALES TAX AND LOWER INCOME TAX REFUNDS FOR MARCH
The Arkansas Department of Finance and Administration (DFA) reported today that March Net General Revenue was below last March by $20.6 million, or 4.6%. However, March General Revenue was above the official forecast by $26.7 million, or 6.6%. DFA attributed results being above forecast “primarily due to Individual Income Tax Refunds being less than expected”.
March Sales and Use Tax collections were below last year by $19.8 million, or 6.7%, and below forecast by $26.6 million, or 8.8%. DFA stated that “Declines were reported in most major categories”. DFA reported that motor vehicle sales tax collections were up 27.7% from last year. They also reported that a one-time refund of $2.5 million lowered collections. Sales and Use Tax collections are an indicator of economic activity. Lower collections may be a sign of slowing economic growth. Even when there are no increased sales transactions, Sales and Use Tax should at a minimum grow with price inflation. Year-to-date Sales and Use Tax collections now show an increase of only $17.7 million, or 0.7%, not keeping up with inflation.
Individual Income Tax collections totaled $281.9 million and were $20.8 million, or 6.9%, less than last March. This was $2.6 million, or 0.9%, above forecast. DFA attributed the reduction to tax cuts implemented since last year and the fact that there was one less payday week this March.
Individual Income Tax Refunds were $132.4 million. This was $24.1 million below last year and $41.9 million less than forecast. DFA attributed the surplus this month to the decrease in Individual Income Tax Refunds. Decreased Individual Income Tax refunds may result from (1) Fewer refund returns filed by taxpayers, (2) Lower refund amounts claimed by taxpayers or (3) Fewer filed refunds being processed and paid by DFA. If the lower amount of refunds paid in March was because taxpayers filed fewer refund returns or taxpayers filed returns for lower refunds that is likely positive for future collections. If fewer filed returns are being processed that is not a positive for collections. DFA has historically kept weekly statistics during tax filing season to track the number of refunds received and processed as well as the total amount paid, and the average paid per return. An analysis of those statistics could determine if there is a large amount of refund liability in the pipeline that has not been paid but will affect revenue in future months.
March Corporate Income Tax totaled $26.9 million, or $9.1 million, less than last year and $1.7 million less than forecast. Corporate Tax is absorbing recent tax cuts, offsetting the total.
DFA has forecasted a surplus of $278 million at the end of the fiscal year on June 30. After nine months the surplus is $131.7 million. The next three months collections must exceed forecast by $146.3 million to obtain the predicted $278 million year surplus.
As the Legislative Session winds down and final forecasts and budgets are set, two key points from the March report should be noted. One note is to consider if Sales and Use Tax are indicating a weakening economy by not even keeping up with inflation. Another note is that Individual Income Tax Refund Statistics should be studied to determine if there is a pending liability for large refund payments that will be made this fiscal year. There could be a substantial liability before the end of the fiscal year if refund returns have been filed later or are being processed later.
The March 2025 revenue report may be viewed and downloaded here.