January 2023 Revenue Report
The Arkansas Department of Finance and Administration (DFA) reported today that net general revenue in January continued to outpace their forecast and added to the surplus that has previously been reported. The revenue report for January shows no sign of economic slowing or recession at this critical time when the Arkansas Legislature is making budget decisions impacting the state’s next two fiscal years. January Net General Revenue was $69.6 million or 10.5% above forecast. This brings the total surplus above the forecast that was revised in November to $194.8 million. The revised forecast already included a $224 million surplus, which brings the total fiscal year surplus close to $1/2 billion. These amounts have also grown above forecast while accelerated income tax rate cuts have been absorbed, decreasing the income tax that would have otherwise been collected.
DFA reported that that revenue was above forecast in all major categories. The largest share of the surplus was from Individual Income Tax, which was $51.7 million or 13.3% above forecast. This was reported to be largely from estimated tax payments from self-employed taxpayers and small business owners. This excess offset employee withholding payments, which were actually below last year by 13.3%, and DFA reported resulted from, “lower withholding rates tied to recent tax reduction enactment.” Elevated estimated tax payments are a sign of economic strength since they are based on taxpayer projections on their income growth for the current tax year.
January Sales and Use Tax collections were above forecast by $15.9 million or 5.7%. DFA reported that, “Most major reporting sectors of Sales Tax displayed high growth over the prior year, reflecting continuing economic expansion in many sectors.” This is certainly optimistic thinking coming from the State’s fiscal agency. They did state that the Retail Sector had lower growth than January of 2022 when the state enjoyed a 25% gain over the 2021 COVID year. Motor vehicle sales tax was also a positive note reported as up 10.2% over last year.
Corporate Income Tax was over forecast by $4.8 million. These gains were reported to be from higher extension payments compared to last year. Higher extension payments indicate that corporations had more income than they estimated as they made payments throughout the year. This indicates that business income may have been better than even corporate taxpayers had expected.
All continues to look bright for the Arkansas economy. Stellar collections in all major categories give reason for optimism. The professionals at DFA who predict future economy and resulting revenue collections have no indicators from current collection statistics to project an economic slowdown or recession. However, current activity is a snapshot that may not show how national economy and extrinsic factors may cause a change in the future. Economic professionals know that growth will not continue indefinitely, and it is a matter of when and not if the economy will slow. Also, economic history shows that no state or region is immune from general national economic downturns. Expect all these factors to be in close scrutiny by Governor Sanders and the legislature as they establish the new budget, including spending priorities and tax cuts. Today, the tax collection groundhog does not cast a warning shadow on the economy.