MAY 2025 STATE REVENUE REPORT
MAY STATE REVENUE EXCEEDS REDUCED FORECAST
The Arkansas Department of Finance and Administration (DFA) reported today that May revenue collections exceeded the revised forecast, which had been reduced by $54 million on May 21. DFA attributed the lowered forecast for the final two months of the fiscal year to an expected delay in income tax payments, following an extension of due dates to July 31, 2025, in response to widespread storm damage across the state.
Individual Income Tax and Corporate Income Tax payments made in July will accrue to the state’s 2026 fiscal year, which begins July 1, 2025. If the delayed payments amount to the projected $54 million, those funds should be reflected in state revenue reports for July and August of the next fiscal year.
DFA stated that May collections exceeded the revised forecast primarily due to stronger-than-expected Individual Income Tax and Sales Tax revenues. In fact, all major revenue categories surpassed the revised projections.
Total Individual Income Tax collections were down $16 million, or 6.4%, from May of last year. DFA attributed this to a reduction in withholding tax rates and the extension of payment due dates. Despite the year-over-year decline, Individual Income Tax exceeded the revised forecast by $10.7 million, or 4.8%.
Corporate Income Tax collections totaled $14 million, which was a decrease of $11.9 million from last year but $5.1 million more than forecast. While May is typically a low-collection month for Corporate Income Tax, this suggests DFA effectively anticipated fluctuations, likely based on observed filing behaviors earlier in the year.
Sales and Use Tax collections rose by $15.8 million, or 5.5%, compared to last May, and exceeded the forecast by $6.6 million, or 2.2%. DFA credited the gains to stronger performance in retail trade, utilities, manufacturing, and motor vehicles. Improvement across categories, following several underperforming months, may signal a strengthening sales tax economy. However, year-to-date growth remains well below price inflation at a rate of only 1.1% above last fiscal year.
As the state enters the final month of the 2025 fiscal year, two key questions remain. First, will early next fiscal year confirm that this year’s lowered forecast for Individual Income Tax reflects delayed payments or does it indicate weaker-than-expected income growth? This should become evident if there is a significant increase in tax payments in July. Second, Is the sales tax sector truly growing, or are higher collections simply the result of rising prices? When prices increase for utilities, phone and cable services, clothing, lodging, restaurants, auto repairs, and more, the corresponding sales tax revenue increases proportionally. It doesn’t take an economist to recognize that prices in these areas have risen by more than 1.1% over the past year. If Sales and Use Tax collections do not outpace inflation next year, it could point to economic stagnation or potential revenue leakage.
The May 2025 revenue report may be viewed and downloaded here.