Sales Tax Revenue Reports Shows Slow Growth

BY STATE SENATOR LARRY TEAGUE –

LITTLE ROCK – At the beginning of each month, the state Department of Finance and Administration releases a detailed report on how much tax revenue state government collected during the previous month.

Legislators and state officials study the revenue report closely for a couple of reasons. It gives an up-to-date estimate on the status of state agency budgets. Also, it is an accurate gauge of overall health of the Arkansas economy.

The state sales tax rate has been unchanged for many years, therefore the monthly report on sales tax collections is an indicator of how well goods are selling, and how much Arkansas consumers are buying.

For example, state sales taxes collections in January were only a little higher than they were in January of 2013. From one year to the next they increased by about $300,000, which is 0.2 percent more than the previous year. Total state sales tax collections in January were $178.6 million.

State budget officials attributed the slow growth in sales taxes to a combination of bad weather and weak retail sales toward the end of the Christmas holidays.  In large part, January’s sales tax remittances reflected what stores collected in December. Budget officials noted that sales tax collections were sluggish all across the country, not just in Arkansas.

When the state counted all of its sources of revenue, such as individual and corporate income taxes, net general revenue was about 6.3 percent below last year.

The decline in revenue was anticipated, however, because last year revenue in January was much greater than usual,  due to the fact that many individuals paid their estimated taxes early to take advantage of new federal tax rules.  So even in spite of the sharp fluctuation in income tax revenue from January of 2013 to January of 2014, state budget officials accurately predicted the trend in tax collections and prepared for it. In January of 2014 state revenues came in close to predictions — net general revenue was 1.6 percent above the official forecast.

Legislators will be studying trends in state revenue closely because the 2014 fiscal session convenes on the second Monday in February, which means that January’s is the most recent financial report available. During the session, lawmakers will approve budgets for state Fiscal Year 2015, which begins on July 1, 2014 and ends on June 30, 2015.

When considering state agency spending requests for FY 2015 lawmakers will take into account the impact of about $85 million a year in tax cuts approved last year.

The major sources of state general revenue are sales taxes and individual and corporate income taxes.  Also, the state collects taxes on tobacco, games of skill, alcoholic beverages and insurance products. In total, the state expects to collect about $6.3 billion in taxes next year for its general revenue fund.  But the state will have much more than that to spend because state government administers numerous programs that are paid for with matching federal funds, such as Medicaid.

Also, the state collects special revenue from dedicated taxes, such as the motor fuels taxes and fees on big trucks that are used exclusively for maintenance and construction of highways.

For the first seven months of the current fiscal year, state revenue is on pace to grow by 2.1 percent over last year.

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