October 2023 Revenue Report

ARKANSAS OCTOBER NET GENERAL REVENUE DOWN

BUT COLLECTIONS MORE THAN EXPECTED

The Arkansas Department of Finance and Administration (DFA) reported today that October Net General Revenue was $92.6 million or 15.3% below last October. However, this revenue was $7.6 million or 1.5% above the amount that was forecast for October. DFA had recently established a trend of revenues coming in above forecast in all major categories (Individual Income Tax, Corporate Income Tax, and Sales and Use Tax), demonstrating broad based strength in the economy. This month, Sales and Use Tax was actually below the forecast. 

Individual Income Tax collections were $47.9 million or 13.5% below last October. Collections were actually above forecast by $7.3 million or 2.4% above forecast. The cause for this variance is that the forecast was decreased to include the recent reductions in the Individual Income Tax, which are now implemented. This is reflected in Individual Withholding Tax, which decreased 7.4% from last year. DFA attributed the Withholding Income Tax results to both recent tax reductions and the timing of payrolls. The payroll timing factor is congruent with last month’s report when Withholding Tax was above forecast and DFA attributed the result to payroll timing. In fact, some Withholding Tax that would have normally been collected this month may have been collected earlier than expected last month. Only an intricate review of large payrolls and payday dates as they occur during the month could determine the full impact.  

October Individual Income Tax refunds were $11.7 million above last year, adding to the total amount revenue fell below last October. This amount would also be a function of tax reductions to some degree. A large amount of these refunds would be for taxpayers filing in October on extension reflecting 2022 tax year income and not reflective of current economy.  

Corporate Income Tax collections were $4.2 million less than last year but $14.4 million more than forecast. The disclaimer that always accompanies Corporate Income Tax collections is that they are notoriously difficult to predict on a monthly basis because of corporate legal reporting requirements and varying payment schedules due to non-calendar fiscal years and corporate tax planning.  

October Sales and Use Tax was below forecast by $4.4 million or 1.5%. Since we have become accustomed to revenue being above forecast in all categories, the question becomes whether this month’s collections are starting to show a weakness in the economy that will result in lower future sales tax collections. Despite being below forecast on total Sales and Use Tax, DFA reported that, “Major reporting sectors of Sales Tax displayed mostly higher growth over prior year, reflecting continuing economic expansion in many sectors.” DFA also reported that sales tax collections on motor vehicle sales were up 7.2% from last October. Based on these statements, DFA evidently does not see a major economic shift which resulted in missing the forecast for Sales and Use Tax in October. National economists are reporting that consumer spending continues to be stronger than expected. In light of these factors, this one month variance from forecast should not create major concern. However, Sales and Use Tax collections are a major economic indicator for the Arkansas economy and future expectations of tax collections. Future months performance in this sector will bear watching, especially since we have become spoiled with collections exceeding forecast in all major taxes.  

The October 2023 revenue report may be viewed and downloaded here.