December Revenue Report
State general revenues continued to exceed the recently increased and revised revenue forecast as reported today by the Arkansas Department of Finance and Administration (DFA) for the month of December. Since the forecast numbers were revised to the new forecast prior to December, the numbers for the month are the same as the year-to-date comparison. Revenues were above forecast in all major categories indicating broad economic improvement. This month also included the Christmas and holiday sales season, which is always anticipated as an indicator of the current economic outlook.
Individual Income Tax collections were $16.7 million or 6.5% above forecast. DFA attributes the Individual Income Tax overage to withholding tax from wages, which increased 9.4% above last year. Withholding increases are due to more employees working or employees working more hours generally, which is one of the best indicators of economic performance. Individual Income Tax refunds were down $8.6 million, also an indicator of improved economy.
Sales and Use Tax collections were $13.4 million or 5.1% above forecast. DFA notes that the Sales and Use Tax growth is concentrated in business sectors that are recovering late from COVID economy, indicating the economy is catching up across the board after the setbacks of COVID.
Corporate Income Tax contributed to the amount over forecast this month, adding $24.7 million. DFA indicated that most of the Corporate Income Tax gain was attributed to quarterly estimates. Corporate Income Tax collections are historically volatile and often related to tax planning and fiscal year differences, rather than economic performance. DFA does not indicate if this overage was attributed to one or a few corporations, which could indicate that this increase might be offset by lower corporate payments later in the state fiscal year. If so, this gain might not be sustained.
The stellar collections in December, after tax cuts and accounting for holiday spending, put the state in good position for funding the budget as the legislature comes into fiscal session in a few weeks. Though the legislature should not be contemplating budget shortfalls in the upcoming fiscal session, they may face a challenge in responding to demands for increased spending as revenues and the economy improve.
The December 2021 revenue report may be viewed and downloaded here.