JANUARY 2026 STATE REVENUE REPORT

REVENUE ANALYSIS

JANUARY STATE REVENUE HITS JACKPOT!

The Arkansas Department of Finance and Administration (DFA) reported today that January revenue exceeded the State’s forecast by $57.4 million. DFA attributed most of this overage to $32 million in income tax withheld from the recent $1.8 billion Powerball winner who chose to take the jackpot as a lump sum. The lump-sum option reduced the payout to approximately $850 million, which then became subject to income tax withholding. When the Arkansas Scholarship Lottery became law, Arkansas income tax statutes were amended to require tax withholding on lottery payments.

With the addition of the $57.4 million from January, the year-to-date surplus now totals $160.3 million. DFA emphasized that the surplus is largely the result of two one-time factors. The first is the windfall from lottery tax withholding. The second factor cited by DFA is that during this fiscal year, “an estimated $41 million was shifted from FY 2025 into FY 2026 due to the extension of the filing deadline for individual and corporate income tax payments to provide relief to Arkansans affected by severe weather.” This indicates DFA’s recognition that these one-time anomalies should be excluded from the base when budgeting for future years.

Individual Income Tax collections increased by $34.5 million, or 9.8%, compared to last January. Collections were $51.5 million, or 15.5%, above forecast. Even without the $32 million lottery tax payment, actual collections exceeded last January’s levels, suggesting that recent tax cuts are being absorbed. Collections would also have exceeded the State forecast by $19.5 million with the lottery payment excluded.

Sales and Use Tax collections rose by $18.7 million, or 6.3%, over last January. This growth exceeds the rate of consumer price inflation and may signal future economic expansion in the State. However, the DFA report did not specify which business sectors contributed to the increased sales. While it may be early to see a significant impact from higher utility payments resulting from recent weather, that could be a contributing factor. Utility-related tax payments may increase further next month as higher bills are reported. Sales and Use Tax collections were $9.8 million, or 3.2%, above forecast.

Corporate Income Tax collections were the downside in the report, declining by $11.8 million compared to last January and coming in $7.6 million below forecast. As frequently noted, Corporate Income Tax payments are highly volatile and influenced by corporate compliance issues as well as national tax planning strategies. Reductions in both Corporate and Individual Income Tax rates may also have contributed to the decline. Only a detailed analysis of filers and individual returns could determine the precise causes.

January was an exceptional month for collections due to the $32 million lottery payout windfall. It was also a solid month independent of that event, with Individual Income Tax collections exceeding forecast by $19.5 million when the lottery payment is excluded, and Sales and Use Tax growth surpassing underlying inflation in the tax base. Together, these factors may suggest the early stages of economic growth momentum. At the same time, the month reflects conservative forecasting, with DFA acknowledging that two significant contributors – the lottery payment and the shifting of income tax payments – are one-time events unlikely to recur. Isolating such payments and excluding them from future forecasts will help the State budget stay on course.

The January 2026 revenue report may be viewed here.