Tax revenue in state tops forecast 5.8%

Rising individual income-tax and sales-tax collections boosted state general revenue in March by $35.1 million over collections a year ago to $546.4 million.

March’s collections exceeded the state’s forecast by $30.1 million, or 5.8 percent, the state Department of Finance and Administration reported Wednesday in its monthly revenue report.

Richard Weiss, director of the Department of Finance and Administration, said he was “a little surprised” by the collections increasing by 6.9 percent last month over a year ago with the deadline for filing income tax returns on April 15, noting “it’s a very volatile [filing] season].”

Historically, the state’s best month for revenue collections has been the month in which annual income tax returns are due.

But Weiss added, “It’s always better to be up than be down.”

Individual income taxes, and sales and use taxes are state government’s two largest sources of general revenue.

March’s collections of $546.4 million are a record for the month, exceeding collections of $511.3 million for March 2013, department tax analyst George Foy said.

The Finance and Administration Department’s report was released two weeks after the Legislature adjourned its 38-day fiscal session in which the Republican-controlled Legislature and Democratic Gov. Mike Beebe enacted a $5 billion general revenue budget that increases state spending by $109 million over current levels in fiscal 2015. Fiscal 2015 starts July 1.

Most of the general revenue spending increases will go to public schools, prisons and human-services programs.

The general revenue budget for fiscal 2015 factors in $85 million in state general revenue reductions from tax cuts enacted during the 2013 General Assembly and up to $89 million in state general revenue savings resulting from the use of federal funds to purchase private health insurance for low-income Arkansans, state officials said.

During the first nine months of fiscal 2014, gross general revenue has increased $124.1 million, or 2.9 percent, over the same period last fiscal year to $4.456 billion, according to the Finance and Administration Department. That’s $50.3 million, or 1.1 percent, above the forecast.

Tax refunds and some specific government expenditures, such as court-mandated desegregation expenses, come off the top of gross general revenue, leaving a net amount that state agencies are allowed to spend.

During the first nine months of fiscal 2014, net general revenue has increased $94.8 million, or 2.7 percent, over the same period last fiscal year to $3.597 billion. That’s $78.2 million, or 2.2 percent, above the forecast.

According to the finance department, state general revenue in March included:

A $27.6 million, or 12.6 percent, increase in individual income tax collections over the same month a year ago to $246.6 million. That exceeded the state’s forecast by $22.3 million, or 9.9 percent.

The increased collections reflect better-than-expected payroll withholding taxes and higher payments from tax returns.

“The biggest gain in income tax is the people who have filed their taxes early,” Weiss said.

Individual income taxes collected from returns increased by $15.6 million over a year ago to $46.1 million, exceeding the forecast for that category by $17.7 million.

“Until all that shakes out in filing season as to who filed early and what, we don’t know exactly what that means,” said Tim Leathers, deputy director for the Finance and Administration Department.

Individual income tax withholdings increased by $11.5 million over a year ago to $196.7 million, exceeding the forecast for that category by $5.1 million.

John Shelnutt, the state’s chief economic forecaster, said he didn’t necessarily believe that the increase in withholdings is tied to more people working and/or working longer hours, adding, “It’s just one month.”

The state’s unemployment rate fell to 7.3 percent in January from 7.4 percent in December, the U.S. Bureau of Labor Statistics reported last month. The rate has fallen from 7.7 percent in August. The national unemployment rate was 6.6 percent in January and 6.7 percent in February.

A $12.6 million, or 7.4 percent, increase in sales and use tax collections over a year ago to $183.1 million. That’s $6.6 million, or 3.7 percent, above the state’s forecast.

The increase in sales tax collections “is nice, but we don’t really have anything” to explain the increase, Weiss said.

Sales-tax collections have been “volatile … very weak and just kind of drifting all over the place the last several months,” he said.

A $4 million, or 5.7 percent, decrease in corporate income-tax collections over a year ago to $65.8 million. That’s $2.8 million, or 4.4 percent, above the forecast. Corporate income tax collections are volatile and often are tied to corporations’ federal tax strategies, state officials said.

A $1.7 million, or 9.6 percent, decrease in tobacco tax collections to $15.7 million. That’s $2.7 million, or 14.6 percent, below the state’s forecast. The monthly changes in tobacco tax collections can be attributed to uneven patterns of tax stamp sales to wholesale purchasers.

Front Section, Pages 1 on 04/03/2014

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