Arkansas Revenue Runs $103 Million Ahead of Forecast as Fiscal Year Advances

Arkansas revenue collections for the current fiscal year continue to exceed expectations, giving state leaders added flexibility as lawmakers and the governor look ahead to the 2026 budget cycle. In a statement released Monday, January 5, the first Monday of 2026, state officials reported that Arkansas net revenue for the fiscal year to date totals $3.4 billion. The fiscal year began July 1, and collections are now nearly $103 million above the state’s official forecast.

That strong year to date performance comes even as revenue dipped in December. Arkansas collected less net general revenue in December 2025 than during the same month a year earlier, a decline driven largely by lower corporate income tax collections.

Net general revenue for December totaled $618.6 million. That figure was $7.8 million below December 2024 levels and $5.8 million under the forecast. Even so, the Arkansas Department of Finance and Administration said the broader revenue picture remains stable, with stronger collections earlier in the fiscal year offsetting the December slowdown.

Corporate Tax Cuts Reshape Revenue Mix

Arkansas has steadily reduced corporate income taxes in recent years, a shift that continues to shape the state’s revenue trends. The Republican supermajority in the legislature, along with Gov. Sarah Sanders, enacted three separate individual and corporate income tax cuts during 2023 and 2024.

Those changes lowered revenue collections in fiscal year 2025 by 3.2 percent compared with fiscal year 2024. State leaders have framed the cuts as part of a broader investment strategy, arguing that Arkansas is becoming a more attractive destination for business investment across multiple sectors.

As a result, corporate income taxes now account for a smaller share of overall state revenue. As of June 2024, Arkansas’ top corporate income tax rate stands at 4.3 percent, down from 5.1 percent in April 2023.

Corporate income tax collections in December totaled $78.1 million, a decrease of $3.4 million from December 2024 and $5.5 million below the forecast.

Individual Income and Sales Taxes Exceed Expectations

While corporate income tax collections declined, revenue tied to individual income taxes proved more resilient. Individual income tax revenue in December totaled $285 million. That figure was down 3.6 percent compared with December 2024 but came in 1.9 percent above the forecast. State officials have pointed to increased investment activity following corporate tax reductions as a factor that can support individual income growth over time.

Sales tax revenue also remained strong in December, with collections totaling $308.7 million, a 3 percent increase from the same month last year and 2.1 percent above the state’s forecast.

Other revenue sources produced mixed results during the first half of the fiscal year. From July through December 2025, tobacco tax collections totaled $90.2 million, down from $95.2 million during the same period in 2024. Insurance revenue rose to $68.6 million, up from $62.6 million a year earlier. Alcoholic beverage revenue declined slightly to $37.4 million, compared with $38.1 million the previous year. Revenue from games of skill increased to $28.5 million, up from $27.5 million, while severance tax collections fell to $4.8 million, down from $6 million during the same period in 2024.

Overall December revenue totaled $714.2 million.

Budget Pressures and Policy Choices Ahead

The state government is entering 2026 in solid financial shape, a position that may give Gov. Sarah Sanders greater confidence as she advances her spending priorities. Sanders has said her long term goal is to eliminate the state income tax entirely. The current top individual income tax rate stands at 3.9 percent, and another round of tax cuts appears likely at some point. Based on current revenue trends, the state appears positioned to absorb further reductions while continuing to fund the Arkansas LEARNS school voucher program.

Lawmakers declined to pursue additional tax cuts during the 2025 legislative session, citing lingering revenue uncertainty and the rising cost of the voucher program. LEARNS is expected to cost the state $326 million in the current fiscal year, a figure that has drawn criticism from opponents and is projected to grow in the years ahead, leaving the timing and scope of future tax cuts an open question.

Outside of vouchers and a limited number of other areas, Sanders and Republican lawmakers have largely held state spending flat, which effectively amounts to a reduction when adjusted for inflation. Arkansas also continues to hold billions of dollars in reserve funds accumulated during the pandemic, when the state posted record surpluses fueled by federal COVID relief spending that boosted the economy.

At the same time, several recent funding decisions have drawn increased scrutiny. The Arkansas PBS Commission ended its affiliation with PBS after losing $2.5 million in federal funding. The state reduced reimbursement rates for child care providers in the fall, citing another federal funding shortfall. An estimated 12,000 Arkansans are expected to lose health insurance coverage this year as Affordable Care Act subsidies shrink and premiums rise for middle class households.

The state has also provided limited assistance to communities hit by tornadoes and flooding in 2025 after the Trump administration declined to fully fund FEMA relief. Against that backdrop, recent revenue gains may influence where additional resources are directed, particularly toward high priority initiatives backed by the governor, including major corrections and infrastructure related projects.

Competing Needs as Legislature Returns

Arkansas lawmakers are scheduled to return to the Capitol in April for a legislative session focused on the state budget. The state faces a wide range of needs even as revenue remains strong. The central question is whether lawmakers will prioritize maintaining reserves or direct additional funds toward the governor’s priorities, particularly the school voucher program, which largely benefits families already outside the public school system, and expanded prison capacity. Increased spending on corrections appears more likely.