State general revenue in January dropped by $25.6 million from a year ago to $622.6 million and was $15.5 million below the state's forecast.
State officials said Tuesday that last month's tax collections suffered from a larger-than-expected dip in individual income-tax revenue that resulted from some taxpayers' federal tax strategies.
Both of the state's largest sources of general revenue -- individual income taxes and sales and use taxes -- also fell short of forecast in January.
And January 2018 marked the largest amount of revenue for that month, $648.2 million, according to Whitney McLaughlin, a tax analyst for the state Department of Finance and Administration.
"The dip this month is a reminder that there is some unpredictably in the month-to-month numbers as taxpayers continue to adjust to the changes in the federal tax code," Gov. Asa Hutchinson said in a written statement.
The Republican said he's pleased that the state's general revenue for fiscal 2019 remains above forecast. The fiscal year starts July 1 and ends June 30.
"The revenue numbers confirm we are right on target with the new 5.9 percent tax plan and that the adjustments to the plan are in line with our revenue projections," Hutchinson said. "The employment numbers and consumer confidence remain strong and the robust Arkansas economy should continue."
During the first seven months of fiscal 2019, total general-revenue collections increased by $112.2 million, or 3 percent, over the same period in fiscal 2018. The revenue to date also exceeded the state's forecast by $7.9 million, or 0.2 percent, the finance department said Monday in its monthly revenue report.
Tax revenue and some special government expenditures come off the top of total revenue, leaving a net amount that state agencies are allowed to spend.
So far in fiscal 2019, the state's net general revenue increased by $134 million, or 4.1 percent, over the same period in fiscal 2018 to $3.41 billion, which also exceeds the state's forecast by $3.9 million, or 0.1 percent.
The projected general-revenue budget for this fiscal year is $5.63 billion -- $172.8 million more than the budget for fiscal 2018.
The Revenue Stabilization Act that distributes general revenue to state-supported programs also would set aside $48 million of what the governor considers surplus money for a restricted reserve fund that he has said would set the stage for future tax cuts and another $16 million to help match federal highway funds.
Under a 2017 law, Hutchinson's plan to cut individual income-tax rates for people with taxable income below $21,000 a year became effective Jan. 1. The cuts are projected to reduce tax revenue by about $25 million in fiscal 2019 and $25 million more in fiscal 2020.
The state's sales tax on groceries also was cut from 1.5 percent to 0.125 percent on Jan. 1 under a 2013 law that used savings from the end of desegregation payments to three Pulaski County school districts to finance that tax cut of about $61 million a year.
According to the finance department, January's general revenue included:
• A $41 million, or 10.7 percent, decline in individual income-tax collections from January of 2018 to $342.2 million. That was $22 million, or 6 percent, short of the state's forecast.
Income-tax withholdings, the largest category, for the month declined by $6.5 million over a year ago to $255.7 million and fell $4.2 million short of the state's forecast. The month had one fewer Friday paydays than the same month a year ago.
Estimated payments, made quarterly by taxpayers, dropped by $34.2 million from a year ago to $78.4 million and fell $17.6 million short of the state's forecast.
Larry Walther, state finance department director, said "we're still feeling the effects" of the federal Tax Cuts and Jobs Act as taxpayers used it to minimize their taxes.
"We had anticipated a reduction in individual income-tax revenue, but it is actually more than what we anticipated," he said. This is occurring in other states, including Kansas, he said.
"I think this is a combination of that tax planning, plus the stock market correction in the fourth quarter,"John Shelnutt, the state's chief economic forecaster, said.
• A $1.2 million, or 0.6 percent, increase in sales and use tax collections compared with a year ago to $207.8 million, which was $10.6 million, or 4.9 percent, short of the state's forecast.
The state collected sales tax in January from retailers based on sales to consumers in December.
Sales-tax collections in January were "positive, but not just as much as we would expect, and motor vehicles was flat," Shelnutt said.
Walther said sales-tax collections from business spending declined in January from a year ago and was below the state's forecast, "but ... there was a lot of business spending for business purposes and sales tax in December [of 2017] and January of last year."
• A $6.6 million, or 26 percent increase, in corporate income-tax collections from a year ago to $32.1 million that exceeded the state's forecast by $9.5 million, or 41.8 percent. Higher estimated payments accounted for most of the gain.
For fiscal 2020 starting July 1, Hutchinson is asking lawmakers to approve a state general-revenue budget that's $125.2 million more than this fiscal year's budget. Most of the increase would go to human services and education programs, including a boost in starting teacher pay.
The governor also is seeking approval for what he calls his "5.9 plan" to cut the state's top individual income tax rate from 6.9 percent to 5.9 percent over two years. State officials project it would cut state tax revenue by $97 million a year, after it's fully implemented.
A Section on 02/05/2019