SEPTEMBER 2025 STATE REVENUE REPORT
STATE REVENUE SLIGHTLY BELOW FORECAST IN SEPTEMBER
The Arkansas Department of Finance and Administration (DFA) reported today that September Net General Revenue was slightly below the monthly forecast. Revenue was below forecast by $1.8 million or 0.3%. However, this is contrary to the prior first two months of the fiscal year, which established a surplus of $75.7 million.
DFA reported that both Individual Income Tax and Sales and Use Tax were above forecast in September, but a significant reduction in Corporate Income Tax offset those gains. In addition, the payment of economic development incentives to businesses from Sales and Use Tax collections was a significant offset to Sales and Use Tax collections.
Individual Income Tax collections were $34.3 million, or 9.4%, lower than last September. This is likely due to the recent tax cuts that continue to be absorbed. August Individual Income Tax collections were above last August, but that did not follow through to September. September Individual Income Tax collections were above forecast by $16.1 million or 5.1%. DFA attributed this performance to be primarily due to "better-than-expected withholding" from payrolls. This is good news since this category is the best indicator of economic growth.
Sales and Use Tax collections were $7.3 million, or 2.6%, greater than last September. DFA reported that significant reductions were made in Sales and Use Tax collections to pay businesses for economic development incentives. DFA stated that without these payments, Sales and Use Tax would have grown by 4.6%. This percentage would be in line with inflationary price increases, contrary to experience over the last several months. This percentage would equate to a $6 million reduction in Sales and Use Tax.
DFA stated that these payments were "refunds for purchases made in prior years." The significance of these payments can only be determined by what type of economic incentive was being paid. If this is a return of documented Sales and Use Tax payments by businesses as opposed to incentives that are calculated by formula and just paid from Sales and Use Tax funds, then the numbers are more directly related to tax liability and economic activity.
Corporate Income Tax collections totaled $76.4 million, which was $25.9 million less than last September and $20.0 million below forecast. September total revenue collections would have been much more robust if not offset by this shortfall. Recent Corporate Income Tax cuts continue to reduce collections. Also, observers will keep in mind that the Corporate Income Tax monthly payments are historically volatile and hard to predict. This amount could be the result of one or two large corporations experiencing a tax filing issue rather than a sign of lower corporate income in the state. If that is the case, this amount could be recovered later in the year. A spike in the tax next month could tell the story.
The minor amount of $1.8 million, or 0.3%, below forecast for September is certainly within any forecaster's margin of error. Good news is that Individual Income Tax withheld from pay continues to perform well as a positive economic indicator. Additional good economic news is that Sales and Use Tax, after factoring for economic incentive payment reductions, seems to be growing as fast as inflation. Hopefully, the economic incentives are being granted based on projected return on investment per project and audited to follow up performance as they historically were. When Corporate Income payments settle and these anomalies are offset, revenues could return to substantial surplus.
The September 2025 revenue report may be viewed here.