State general-revenue tax collections in May dipped by $14.3 million from the same month a year ago to $481.9 million, but outdistanced by $65.1 million the state's forecast that was cut in March because of economic changes spawned by the coronavirus pandemic.
Individual income-tax collections in May increased slightly over what they were in the same month a year ago, while sales and use tax receipts slipped a tad, but both tax sources exceeded the forecast that was revised March 23, the state Department of Finance and Administration said Tuesday in its monthly revenue report.
Individual income and sales and use taxes are state government's two largest sources of general revenue.
Arkansas' record general-revenue collections in May remains the 2019 collection of $496.2 million, said Whitney McLaughlin, a tax analyst for the finance department.
"I am delighted with the individual income tax collections, with the fact that people are going back to work," Gov. Asa Hutchinson said.
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"The sales-tax collections show that people are gaining confidence in our economy again," the Republican governor told reporters at his coronavirus news conference at the Capitol.
Arkansas is one of a handful of states that decided against imposing a shelter-in-place order because of the pandemic.
The state's economy hasn't been affected "to the extent that we are seeing in other states as measured by sales tax and to some extent in payroll withholding," the state's chief economic forecaster, John Shelnutt, said.
For example, he pointed out that Texas' sales-tax collections declined in May by 13.2% from a year ago, compared with Arkansas' drop of 2.8%. The sales-tax collections in May are largely based on purchases made in April.
In April, unemployment in Arkansas shot up to 10.2%, ballooning to double-digits for the first time in more than 35 years, but fell 4.5% short of the nation's unemployment rate for the month, state officials said nearly two weeks ago. Texas' unemployment rate was 12.8% in April.
May is the 11th month of fiscal 2020, which ends June 30.
FISCAL YEAR TOTALS
Thus far in fiscal 2020, total general revenue collections have dropped by $129.1 million, or 2%, below the same 11-month period in fiscal 2019 to nearly $6.3 billion but exceeded the revised forecast by $195.2 million or 3.2%.
Tax refunds and some special government expenditures come off the top of total general revenue, leaving a net amount that state agencies are allowed to spend.
Net revenue in May slipped by $12.8 million or 3.4% from a year ago to $365.8 million but exceeded the revised forecast by $80.6 million or 28.3%.
During the first 11 months of fiscal 2020, net revenue has dropped by $105.7 million or 2% below the same period in fiscal 2019 to nearly $5.2 billion and exceeded the forecast by $287.6 million or 5.9%.
On March 23, the finance department cut the budget for fiscal 2020 by $353.1 million to $5.38 billion.
For the budget cut, Hutchinson cited shifting the state's April 15 deadline for filing and paying individual taxes to July 15 and a projected decline in tax collections for the rest of fiscal 2020. The new income-tax deadline falls in fiscal 2021.
Hutchinson said Tuesday, "As we enter the end of the fiscal year, we have to decide whether we want to revise the budget any upward since we have that [$287.6 million] surplus there to meet some of the needs of our agencies, so I am looking at that as to whether we need to loosen the belt just a little bit.
"I will meeting with [finance department secretary Larry] Walther and his team on that in the coming days and evaluating where we are in terms of our agencies and their budget needs," he said.
Hutchinson spokeswoman Katie Beck said the governor will decide next week whether executive-branch state employees will be granted merit raises.
Asked about the possibility of the state beating its net general revenue forecast for fiscal 2020 by an amount exceeding the $353.1 million budget cut, Shelnutt said earlier Tuesday, "We have a lot of moving parts in June, mainly estimated payments.
"We have $110 [million]-$115 million in estimated payments between corporate and individual [income taxes]," Shelnutt said. "They may decide to not make a payment for tax year 2020 because they don't need to. That's our remaining concern at the end of the year."
MAY DETAILS
According to the finance department, May's general revenue included:
• A $3 million, or 1.3%, increase in individual income-tax collections from a year ago to $235.4 million, which exceeded the forecast by $48.4 million, or 25.9%.
Withholdings are the largest category of individual collections.
Withholdings dropped by $7.3 million, or 3.4%, compared with a year ago to $206.3 million, but exceeded the forecast by $23.1 million.
Individual income-tax collections from tax returns and extensions increased by $5.4 million from a year ago to $19.9 million and outdistanced the forecast by $19.8 million, while collections from estimated payments increased by $4.9 million from a year ago to $9.2 million and exceeded the forecast by $5.4 million.
"We picked up another $20 million in payments with returns and extensions that we assumed would be out of July," Shelnutt said. "That's on top of what they did in April."
Asked if there is any concern about the state collecting some individual income taxes in fiscal 2020 that it expected to collect in fiscal 2021 and, thus, might end up short according to its fiscal 2021 forecast, Walther said, "Yes, we have had that conversation multiple times."
• A $5.9 million, or 2.8%, drop in sales and use tax collections from year-ago figures to $205.7 million that exceeded the forecast by $16.2 million or 8.5%.
The sales and use tax collections in May largely reflect purchases made in April.
Shelnutt said retail trade sales collections increased by $6.7 million, or 8.4%, compared with a year ago, and the motor-vehicle portion of collections increased by $780,000, or 2.8%, in May compared with a year ago.
• A $2 million, or 11.5%, decrease in corporate tax collections from a year ago to $15.1 million that outdistanced the forecast by $1.5 million, or 11%. Corporate collections often fluctuate on a monthly basis.
CASINO TAXES
Casino tax collections dropped $6.2 million to zero -- $2.9 million below forecast.
The casino taxes remitted to the state in May are based on gambling in April. Oaklawn Racing Casino Resort in Hot Springs, Southland Casino Racing and the Saracen Casino Annex in Pine Bluff -- across the street from the Saracen Casino Resort under construction -- were closed in mid-March and reopened May 18.
During the first 11 months of fiscal 2020, casino and gambling revenue totaled $31.2 million, a drop of $32.3 million, or 50.9%, from a year ago and fell $2.6 million, or 7.8%, short of forecast.
The overall drop in casino and gambling tax revenue had been expected largely because Oaklawn and Southland are paying a lower tax rate under Constitutional Amendment 100 approved by voters in November 2018.
Amendment 100 allows Oaklawn and Southland to operate full-fledged casinos and authorizes new casinos in Jefferson and Pope counties. No casino has been authorized yet in Pope County by the Arkansas Racing Commission.
Projected casino and gambling revenue in fiscal 2020 totals $37.1 million, but that includes $5.7 million in electronic-games-of-skill taxes collected in July 2019, which does not count toward the $31.2 million cap that general revenue has for casino taxes, according to McLaughlin.
Under Act 416 of 2019, casino gambling revenue above $31.2 million will be diverted to the state Department of Transportation, which will be guaranteed a minimum of $35 million a year from casino revenue, a restricted reserve fund or other sources.
The money is part of a plan to raise more money for highways and roads, which includes a wholesale sales tax on gas and diesel and increases in registration fees for hybrid and electric vehicles that became effective Oct. 1.
In its fiscal session in April, the Legislature enacted a $5.89 billion general-revenue budget for fiscal 2021, which starts July 1. The revised fiscal 2021 forecast would provide $5.68 million for that budget and leave $212.2 million unfunded. On April 2, the finance department cut the fiscal 2021 forecast for net general revenue available to state agencies by $205.9 million to $5.68 billion, citing an expected recession from the pandemic.
In comparison, the general revenue budget totaled $5.62 billion in fiscal 2019, while the fiscal 2020 budget totals $5.38 billion after the March 23 budget cut.
In the March 26-28 special session, the Legislature created a covid-19 rainy-day fund with $173.6 million surplus state tax revenue to use to fill budget holes and cover unexpected needs spawned by the coronavirus.
Finance department spokesman Scott Hardin said the covid-19 rainy-day fund has a remaining balance of $150.7 million.
The beneficiaries of that fund include the the Department of Health, Division of Correction, Division of Community Correction, Henderson State University, University of Arkansas for Medical Sciences and the state Crime Laboratory.
A Section on 06/03/2020