The latest General Revenue Report from Arkansas’ Department of Finance and Administration offers a glimpse into the state’s financial health as we reach the midpoint of fiscal year 2025. While the state has seen some revenue sources surpass expectations, others have faced declines, with tax cuts playing a significant role in the shifting numbers.
Year-to-Date Revenue Overview
For the first six months of fiscal year 2025, Arkansas’ net available general revenue totaled $3.36 billion. While this represents a decrease of 1.9% from last year, the state’s revenue is still 0.9% above the forecast. This suggests that, despite some challenges, Arkansas’ finances are in relatively good shape, exceeding projections.
The gross general revenues have seen a decline of 2.9% compared to last year but have exceeded expectations by 0.7%. So, while the state is collecting less in total compared to last year, the figures are still on track when compared to what was initially forecasted.
Tax Trends: A Closer Look
A major factor in these shifts is Arkansas’ tax rate reductions passed in recent legislative sessions. The most notable impacts are in the individual income tax and corporate income tax collections.
- Individual Income Tax:
- Year-to-date collections in this category stand at $1.67 billion, a 3.7% decrease from last year. Despite the drop, collections are still 2.4% higher than expected, indicating a steady stream of income despite lower rates.
- Corporate Income Tax:
- Corporate income taxes have taken a significant hit. With collections down by $87.4 million compared to the previous year, the state’s corporate tax collections are 7.0% below forecast. This points to a challenging environment for Arkansas businesses in the current fiscal year.
- Sales and Use Tax:
- On a positive note, sales and use taxes have risen by 1.5% compared to last year, reaching a total of $1.77 billion. This marks a positive performance, especially considering other areas of decline. Sales taxes also came in 0.4% above forecast.
December’s Performance: A Mixed Bag
Looking specifically at December 2024, the state saw net available general revenue of $626.4 million—a 6.1% decrease compared to last year. However, it was 2.9% above forecast, thanks to strong individual income tax collections which outpaced expectations by more than 13%.
While sales tax collections were slightly higher than anticipated, corporate income taxes showed a much steeper drop, coming in 22% below forecast. Additionally, tobacco taxes saw a drop of $3.0 million compared to last year, and gaming revenues performed better than expected.
Special Revenue Highlights
One important revenue source worth noting is the Educational Adequacy Fund, which benefited from the state’s sales tax rate increase. In December 2024, the fund received $61.4 million, reflecting a 0.7% increase over the previous year’s collections.
This revenue is used to fulfill the state’s obligations for funding public education, ensuring that vital programs are maintained despite fluctuations in other areas of the budget.
Conclusion: Optimism Amid Challenges
While some areas of Arkansas’ revenue stream have been impacted by tax reductions and corporate challenges, the state is still on track to meet its fiscal expectations. Tax collections in areas like sales, gaming, and insurance are performing well, offsetting losses in individual and corporate income tax receipts.
The state’s ability to manage these fluctuations and maintain revenue streams above forecast is a positive sign for Arkansas’ overall fiscal health as we move further into 2025.
