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Arkansas Taxable Sales (Including Gasoline) – 2011:Q1

High Gasoline Prices Divert Spending

Preliminary data indicated that Arkansas Taxable Sales (ATS) increased only modestly in the first quarter of 2011 (+0.7%), and had shown little net growth over the past three quarters (+0.6%).  Based on information released last week from the Arkansas Department of Finance and Administration (DF&A),  revised statistics show an even smaller increase in the first quarter, +0.6%.  As shown in Figure 1, the sluggish growth in ATS since mid-2010 contrasts with national retail sales statistics, which have shown steady recovery from the recession. 

Sources:  U.S. Census Bureau, Arkansas Department of Finance and Administration, Institute for Economic Advancement
Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Institute for Economic Advancement

In the Arkansas Economist report on the preliminary figures we speculated that the difference might be related to the recent spike in gasoline prices.  (This factor was also mentioned in the most recent General Revenue Report from DF&A.) National retail sales statistics from the Census Bureau include expenditures on gasoline.  But because gas is not subject to sales tax in Arkansas, it is not included in ATS. 

As shown in Figure 2, the share of total U.S. retail sales reported at gasoline stations varies directly with the price of gasoline.  In the short run, the demand for gasoline tends to be price inelastic — that is, the quantity of gasoline purchased remains fairly stable when prices change.  Consequently, an increase in gasoline prices raises the share of total spending devoted to gasoline.

Sources:  U.S. Census Bureau and U.S. Department of Energy
Sources: U.S. Census Bureau and U.S. Department of Energy

Arkansas Taxable Sales includes the non-gasoline items that are sold at gas stations, but it doesn’t include the gasoline iteslf.  When gas prices increase dramatically, this means that ATS is missing a component that is of growing importance.  Although gasoline is not subject to sales tax in Arkansas, it is subject to a motor fuel tax that is assessed per gallon sold.  Therefore, the Department of Finance and Administration has monthly records of the quantity of gasoline sold in the state.  Multiplying the quantity sold by the average price for gasoline in Arkansas (obtained from the Oil Price Information Service), we can construct aggregate gasoline sales to be included in an expanded measure of ATS — Arkansas Taxable Sales Including Gasoline (ATSIG).  Figure 3 compares ATS with and without this newly-constructed measure of gasoline expenditures.

Sources:  Arkansas Department of Finance and Administration, Oil Price Information Service, Institute for Economic Advancement
Sources: Arkansas Department of Finance and Administration, Oil Price Information Service, Institute for Economic Advancement

The data that include gasoline sales show considerably greater strength in recent quarters than the original version of ATS:  In the past three quarters, ATSIG has grown by 2.8%, compared to the meager 0.6% growth without including gasoline expenditures.  The difference is particularly marked in the first quarter of this year, with ATSIG expanding by 1.9%.  In the most recent two quarters, ATSIG shows that total sales growth in Arkansas expanded more than 1% per quarter faster than ATS (without gasoline) suggests.

ATSIG_Growth_Rates

With gasoline included, the recent growth of taxable sales in Arkansas more closely mirrors the statistics on national retail sales, as shown in Figure 5.

Sources:  U.S. Census Bureau, Arkansas Department of Finance and Administration, Oil Price Information Service, Institute for Economic Advancement
Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Oil Price Information Service, Institute for Economic Advancement

So how should we interpret the surge in recent spending on gasoline?  From a strictly utilitarian standpoint, it is appropriate to include gasoline in total sales so that it more closely matches the U.S. Retail Sales statistics.  But the economic significance of an increasing gasoline share in total spending is trickier to evaluate.  To the extent that a gasoline price increase is considered permanent, it should have a negative wealth effect that reduces overall spending.  On the other hand, a temporary price spike should have negligible wealth effects, but might induce households to borrow more and/or save less in order to maintain planned spending on non-gasoline items.  This is likely to be a factor in explaining the sharp surge in ATSIG in response to the surge in gasoline prices in early 2008.  But, if households are effectively credit constrained, the increased spending on gasoline is likely to crowd out other spending — leaving total spending at about the same rate as it would be without the gasoline price spike.  The reaction of non-gasoline spending to the 2011 price spike suggests this scenario might be relevant for interpreting recent data.  The difference between 2008 and 2011 is illustrated in Figure 6, which shows the gasoline expenditure share in ATSIG alongside Arkansas average gasoline prices.  In 2011, the rise in gasoline prices was slightly smaller than the 2008 spike, but the share of spending on gasoline has exceeded the 2008 peak.  This indicates that the 2011 price surge has resulted in a larger cut-back in non-gasoline expenditures.

Sources:  Arkansas Department of Finance and Administration, Oil Price Information Service, Institute for Economic Advancement
Sources: Arkansas Department of Finance and Administration, Oil Price Information Service, Institute for Economic Advancement

Gasoline prices have fallen considerably in recent weeks.  According to the AAA Fuel Guage Report, gasoline prices in Arkansas have declined by nearly 23 cents over the past month.  This is likely to reverse the substitutions we’ve seen in the early-2011 data, with non-gasoline items again constituting a larger share of total spending.  For state general revenues, which depend heavily on sales taxes, this should result in more rapid growth for the remainder of 2011.

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A spreadsheet with data for ATS and ATSIG is available here.

Arkansas Taxable Sales Up 0.7% in 2011:Q1

Preliminary figures indicate that Arkansas Taxable Sales rose slightly in the first quarter of 2011, up 0.7% from the previous quarter.   Following sluggish growth in the third quarter of 2010 and a decline in the fourth quarter, the most recent data show that sales have been essentially flat since the middle of last year. 

Sources:  Department of Finance and Administration; Institute for Economic Advancement.
Sources: Department of Finance and Administration; Institute for Economic Advancement.

Raw monthly data from the Department of Finance and Administration (DFA) show that recent sales tax collections have been above the levels of the previous year, and totals for the fiscal year-to-date have been running close to official forecasts.  But recent monthly figures have been less than robust, coming in below forecast. 

As shown in the figure below, Arkansas Taxable Sales had risen sharply during the first half of 2010, but slowed in the latter part of the year.  The sharp decline in December prompted speculation in a previous post as to whether unusual holiday spending patterns might be to blame.  Sales during the first three months of 2011 have rebounded somewhat, but remain below the peak levels of mid-2010.

Sources:  Department of Finance and Administration; Institute for Economic Advancement.
Sources: Department of Finance and Administration; Institute for Economic Advancement.

The sluggish figures for the first three months of 2011 suggest that the weakness in December sales was not an anomaly.  However, there is one important factor to consider in interpreting recent data:  Gasoline is not subject to sales and use taxes in Arkansas, so it is not included in the Arkansas Taxable Sales figures.  Data from AAA shows that  gasoline prices in Arkansas rose by more than 40% between September 1, 2010 and April 1, 2011.  Even with slowing demand due to conservation responses, that rate of price increase suggests that people have been devoting a larger share of their total spending to fuel consumption, and a smaller share to other categories that are included in Arkansas Taxable Sales.  This factor is likely to continue to restrain Arkansas Taxable Sales growth in coming months.

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The Arkansas Taxable Sales series is calculated by the Institute for Economic Advancement to serve as a timely measure of Arkansas retail sales.  The series is derived from sales and use tax data from DFA, adjusting for the relative timing of tax collections and underlying sales, changes in tax laws, and seasonal patterns in the data.

A spreadsheet of the data is available here:  Arkansas Taxable Sales data (Excel file)

* Data are preliminary until the release of the DFA report, Arkansas Fiscal Notes for April 2011, and will be updated when information becomes available.

Arkansas Taxable Sales Down Slightly in 2010:Q4

Recent data on sales tax collections from the Arkansas Department of Finance and Administration (DFA) show that taxable sales growth stalled at the end of 2010.  After adjusting for the timing of tax collections, changes in tax law, and recurring seasonal fluctuations, the latest tax collection data show that Arkansas Taxable Sales declined by 0.7%  in the fourth quarter of 2010.*   After revision of seasonal factors, the fourth-quarter decline almost exactly offsets a gain of 0.7% seen in the third quarter.  For 2010 as a whole, total taxable sales were up 4.2 from the previous year.

Sources:  Arkansas Department of Finance and Administration, Institute for Economic Advancement
Sources: Department of Finance and Administration, Institute for Economic Advancement

The fourth quarter decline was primarily attributable to a sharp drop-off in December.  DFA reports sales tax collections as of the month they are received by the state — generally after a one month lag.   Consequently, the decline in December sales corresponds to sales tax receipts for January, as reported by DFA yesterday.  The DFA monthly general revenue report noted the decline, citing a 3.1 percent decline in gross receipts collections that resulted in a total that was 4.9 percent below forecast.   The holiday shopping season is usually associated with a surge in December sales, so the process of seasonally-adjusting the data reinforces the unusual nature of the decline at the end of 2010.

Sources:  Department of Finance and Administration, Institute for Economic Advancement
Sources: Department of Finance and Administration, Institute for Economic Advancement

The weak sales growth in December is surprising given anecdotal information about the relative strength of the holiday shopping season.  It is possible that the source of the weakness is in non-retail areas of sales and use tax collections.  For instance, tax collections from utilities might have been low due to relatively favorable weather and low energy costs.  It might also be the case that holiday shoppers spent more money on online purchases, for which sales and use tax collection is not always complete.  However, there is really no solid evidence available to explain the downturn.

The fourth quarter decline in Arkansas Taxable Sales is surprising — and disconcerting.  However, we should be cautious about putting too much emphasis on a single monthly data observation.  We’ll just have to wait and see how the numbers come in for the first few months of 2011 before concluding that the December number represented either a change in trend or an anomaly. 

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The Arkansas Taxable Sales series is calculated by IEA to serve as a timely measure of Arkansas retail sales.  The series is derived from sales and use tax data from DFA, adjusting for the relative timing of tax collections and underlying sales, changes in tax laws, and seasonal patterns in the data.

A spreadsheet of the most recent data is available here:  Arkansas Taxable Sales data (Excel file)

Arkansas Taxable Sales Up 0.9% in the Third Quarter

Recent data on sales tax collections from the Arkansas Department of Finance and Administration show that taxable sales continued to expand in recent months.  After adjusting for the timing of tax collections, changes in tax law, and recurring seasonal fluctuations, recent sales tax growth suggests that Arkansas Taxable Sales increased by 0.9 percent in the third quarter of 2010.* 

This is the fourth consecutive quarterly increase, confirming that sales growth in Arkansas is continuing to recover substantially from the 2007-09 recession.  Over the past four quarters, Arkansas Taxable Sales have risen by 7.2 percent.

Sources:  Department of Finance and Administration, Institute for Economic Advancement
Sources: Arkansas Department of Finance and Administration, UALR Institute for Economic Advancement
The third quarter gain is smaller than the previous two quarters.  As shown in the chart below, this deceleration is consistent with the pattern of national retail sales, which slowed from a 1.1 percent growth rate in the second quarter to a 0.6 percent rate in the third quarter.  But Arkansas continues to outpace the rest of the country:  Over the past four quarters, U.S. retail sales have grown at a rate of 5.6%, compared to the 7.2 percent rate for Arkansas Taxable Sales.  The recovery in sales growth in Arkansas may have lagged behind the rest of the nation, but the most recent data continue to indicate that Arkansas is rebounding more quickly.
Sources:  Department of Finance and Administration, Institute for Economic Advancement
Sources: Arkansas Department of Finance and Administration, U.S. Census Bureau, UALR Institute for Economic Advancement

The third-quarter increase is likely to be characteristic of sales growth over the next several quarters.  Rapid growth in the first half of the year reflected pent-up demand from the recession, and sales are now likely to settle into a more sustainable long-run pace.  Over the next two years, Arkansas Taxable Sales are forecast to grow in the range of 3 to 4 percent annually.

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*In early November, we would typically be reporting preliminary figures for the third quarter based on information from the DFA General Revenue Report for October and Arkansas Fiscal Notes for September.  Thanks to Dr. George Foy at DFA for providing the data needed to calculate final figures for the third quarter in advance of the usual publication schedule.

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The Arkansas Taxable Sales series is calculated by IEA to serve as a timely measure of Arkansas retail sales.  The series is derived from sales and use tax data from DFA, adjusting for the relative timing of tax collections and underlying sales, changes in tax laws, and seasonal patterns in the data.

A spreadsheet of the most recent data is available here:  Arkansas Taxable Sales data (Excel file)

Arkansas Taxable Sales – Revised Data for 2010:Q2

“Sales rose by 3.0 percent, rather than the 4.0 percent previously reported.”   

The reason:  “Grocery sales, as a percent of total sales, dropped sharply in June.  This could actually be a positive development.”

The preliminary estimate for second quarter growth of Arkansas Taxable Sales (ATS), announced in a previous post, was based on information from the July 2010 General Revenue Report from the Arkansas Department of Finance and Administration (DFA).  With the recent release of more detailed information in the DFA publication Arkansas Fiscal Notes, a revised estimate of ATS shows a somewhat smaller increase in the second quarter of 2010:  Sales rose by 3.0 percent, rather than the 4.0 percent previously reported.

The downward revision is disappointing.  But as shown in the chart below, it doesn’t really change the qualitative interpretation of second quarter data:  Sales accelerated in 2010:Q2 and have risen significantly since the apparent trough of 2009:Q3. 

Source:  Arkansas Department of Finance and Administration, and author's calculations.
Sources: Arkansas Department of Finance and Administration and author's calculations.

Investigation of the reason for the downward revision in ATS reveals an interesting observation:  Grocery sales, as a percent of total sales, dropped sharply in the June.  This could actually be a positive development.  

Preliminary estimates of ATS are based on gross receipts, which primarily reflect total sales tax collections.  But total sales taxes represent a mix of taxes on groceries (at a current tax rate of 2 percent) and taxes on non-groceries (at a tax rate of 6 percent).  Changes in the mix of these two categories alter the effective tax rate on total sales.

The revised figures for ATS are based on data on receipts from the Arkansas Conservation Tax.  Because it is written into the Arkansas constitution, the Conservation Tax was not altered by reductions in the tax rate on groceries in July 2007 (from 6 percent to 3 percent) and in July 2009 (from 3 percent to 2 percent).  Instead, the lower sales tax on groceries is reflected in proportional reductions in the other three components of Arkansas’ Sales and Use Tax (the General Sales Tax , the Educational Adequacy Tax, and the Property Tax Relief Tax).

When groceries decline as a fraction of total sales, these three taxes show a disproportionate increase in overall tax receipts (because a larger share of sales are taxed at a higher rate).  The preliminary ATS estimates (which are implicitly based on the assumption of a constant share of grocery sales) would therefore overstate the increase in total taxable sales if this were the case.

This appears to be exactly what happened in June.  By comparing changes in tax receipts from the conservation tax with receipts from the other sales tax components, it is possible to estimate the share of grocery sales as a proportion of total sales (see technical note).  The results of this estimation are shown in the chart below.  Before the national recession began at the end of 2007, groceries constituted about 6 percent of total sales.  This proportion rose during the early stages of the recession in 2008, and increased sharply at the end of the year when the financial crisis intensified the economic downturn.  Estimates for June 2010 show a sharp decline, from about 12 percent to just over 8 percent.

Sources:  Arkansas Department of Finance and Administration, and author's calculations.
Sources: Arkansas Department of Finance and Administration, and author's calculations.

Economic theory distinguishes goods by the responsiveness of their demand to changes in income.  Some basic grocery items are considered “inferior goods,” reflecting the fact that fewer are purchased as income increases (in favor of higher-quality goods).  In general, groceries are considered “normal goods,” for which demand increases when income rises, but typically less than one-for-one.   In contrast, some  goods are considered “superior goods” or “luxury goods,” for which demand increases in greater proportion to income.

The observation that grocery sales increased as a percent of total sales during 2008 and into 2009 is therefore consistent with a downturn in household income during the recession.  The recent decline in the grocery sales suggests that households are increasing their purchases of superior goods relative to normal and inferior goods.  This provides indirect evidence of higher household incomes (or at least expected incomes).

This observation is supported by data for only one month, so it should be taken as conjectural.  However, it suggests that the downward revision in ATS for the second quarter is not unambiguously bad news.

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The Arkansas Taxable Sales series is calculated by IEA to serve as a timely measure of Arkansas retail sales.  The series is derived from sales and use tax data from DFA, adjusting for the relative timing of tax collections and underlying sales, changes in tax laws, and seasonal patterns in the data.

A spreadsheet of the most recent data is available here:  Arkansas Taxable Sales data (Excel file)

Arkansas Taxable Sales up 4% in the Second Quarter

The July General Revenue Report  from the Department of Finance and Administration (DFA) showed that gross receipts collections (primarily sales and use taxes) were up sharply in July– 8.9 percent higher than the previous year and 2.7 percent above the DFA  forecast.   This information implies a surge in taxable sales toward the end of the second quarter of 2010.  

In fact, newly calculated statistics show that Arkansas Taxable Sales rose by 4.0 percent in the second quarter (preliminary*) following a revised 2.6 percent growth rate in the first quarter of the year.  The latest reading represents the third consecutive quarterly increase.

Source: Calculated by IEA using data from the Arkansas Department of Finance and Administration
Source: Calculated by the UALR Institute for Economic Advancement using data from the Arkansas Department of Finance and Administration

The improvement in Arkansas Taxable Sales growth in the second quarter contrasts with national retail sales data, which showed a slowdown in growth.  After increasing at a 2 percent rate in the first quarter, U.S. Retail Sales rose by only 1 percent in the second quarter.  As illustrated in the chart below, Arkansas Retail Sales have increased by a total of 7.6 percent over the past three quarters of growth, while U.S. Retail Sales have increased by only 6.8 percent over four quarters of growth.  The turnaround in Arkansas sales growth lagged the rest of the nation, but the most recent data on Arkansas Taxable Sales suggests that Arkansas is rebounding more quickly.

Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, UALR Institute for Economic Advancement.
Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, UALR Institute for Economic Advancement.

The Arkansas Taxable Sales series is calculated by IEA  to serve as a timely measure of Arkansas retail sales.  The series is derived from sales and use tax data from DFA, adjusting for the relative timing of tax collections and underlying sales, changes in tax laws, and seasonal patterns in the data.

A spreadsheet of the data is available here:  Arkansas Taxable Sales data (Excel file)

* Data are preliminary until the release of the DFA report, Arkansas Fiscal Notes for July 2010, and will be updated when information becomes available.

Arkansas Taxable Sales – Update

As noted in a recent post announcing Arkansas Taxable Sales for the first quarter of 2010, the initial data are preliminary until after more detailed statistics are published by the Department of Finance and Administration (DF&A).  With the release of Arkansas Fiscal Notes for April 2010, revised figures are now available.

The final data show a slightly smaller sales figure for the first quarter, with a downward revision amounting to only 0.25 percent.  The final data still show a strong gain in the 2010:Q1, up 2.1% (seasonally adjusted).  This follows a 1.0% gain in the fourth quarter of last year.

TextBox2010Q1

The release this morning of the monthly general revenue report for May also provides information to update the monthly series with preliminary data for April 2010.   These estimates show that  Arkansas Taxable Sales in April were up 1.7 percent from March (seasonally adjusted).  Although these data are based on preliminary and incomplete information, it would appear that retail sales were off to a strong start in the second quarter of 2010. 

Arkansas Taxable Sales statistics are constructed by the Institute for Economic Advancement using tax collection data from the Arkansas Department of Finance and Administration. Data for April 2010 are preliminary.
Arkansas Taxable Sales statistics are constructed by the Institute for Economic Advancement using tax collection data from the Arkansas Department of Finance and Administration. Data for April 2010 are preliminary.

 Updated and revised data are available in Excel spreadsheet form by clicking here.

Arkansas Taxable Sales up 2.4% in the First Quarter

“Sales rose by 2.4 percent in the first quarter of 2010 following a 1.0 percent increase in the fourth quarter of 2009…”

As described in a previous article, data on state sales tax collections can be used to measure overall sales activity in the state, producing a data series we called Arkansas Taxable Sales.  The Institute for Economic Advancement has developed this measure to help fill an existing gap in the availability of timely, accurate data on the retail sales sector of the Arkansas economy.

The latest report on state revenues from the Department of Finance and Administration showed that April gross receipts collections (primarily sales taxes) were up from the previous year, and were 0.7 percent above DFA’s forecast.   With this information, preliminary* data on Arkansas Taxable Sales for the first quarter of 2010 can be estimated.

After adjustments for the timing of tax collections relative to underlying sales, changes in tax laws, and seasonal patterns in the data, the Arkansas Taxable Sales series serves as a proxy measure for recent conditions in the retail sales sector. 

The new reading on this statistic shows that sales rose by 2.4 percent in the first quarter of 2010 following a 1.0% increase in the fourth quarter of 2009, lifting sales to a level 3.4 percent higher than in the trough that is now evident in third quarter of 2009.

Arkansas Taxable Sales data are constructed by the Institute for Economic Advancement using sales and use tax collections data from the Arkansas Department of Finance and Administration.
Arkansas Taxable Sales statistics are constructed by the Institute for Economic Advancement using tax collection data from the Arkansas Department of Finance and Administration.

The first quarter data indicate a  pattern of recovery in Arkansas retail sales.  With two consecutive quarterly increases, this is a clear indication that positive growth has taken hold in the Arkansas retail sales sector.  Mirroring similar gains that we’ve seen in statistics for retail sales nationwide, this information confirms recent trends suggesting that Arkansas is firmly back in the expansion phase of the business cycle.

Arkansas Taxable Sales data (Excel file)

* Data are preliminary until the release of the DFA report, Arkansas Fiscal Notes, for April 2010.  Data will be updated when information becomes available.

Arkansas Taxable Sales

A new indicator of economic activity for the Arkansas economy

Retail sales statistics for the U.S. economy are regularly compiled by the Census Bureau.  However, there is no readily-available, timely source of data for retail sales on the state level.  One approach to filling this gap is to use state sales tax collections as a measure of taxable sales.   In principle, the approach is quite simple:  Taxable sales = Sales tax collections/tax rate.  In order to extrapolate sales statistics from tax data, however, it is necessary to consider the coverage of the tax, changes in tax law, and the timing of state revenue collection relative to the underlying sales.

Arkansas has four separate sales taxes imposed on a common base:  a general sales and use tax of 4.5 percent, a tax for the educational adequacy fund of  0.875 percent, a property tax relief tax of 0.5 percent, and a conservation tax of 0.125 percent (for a total tax rate of 6.0 percent).  Each of these taxes could conceivably be used to identify overall sales activity.  However, recent changes in tax structure complicate matters.  In particular, the tax rate on grocery purchases was lowered from 6.0 percent to 3.0 percent in July 2007, then lowered again to 2.0 percent in July 2009.  When these tax cuts were adopted by the state legislature, the associated revenue reductions were specified to be subtracted from three of the four specific taxes, in proportion to their relative rates.  As a result, these three taxes (general sales and use, educational adequacy, and property tax relief) no longer represent a constant fraction of total sales–rather, they represent a weighted average of taxes on non-grocery items (at the statutory rate) and taxes on groceries (at a lower rate).  Only the 1/8-percent conservation tax remains at its statutory rate.  (The conservation tax is not affected by recent tax law changes because it is written into the state constitution.)  The conservation tax is therefore a unique candidate for use in estimating the underlying tax base.

A second important factor for deriving sales information from tax collection data is the timing of tax receipts relative to the  sales being taxed.  Tax laws in Arkansas impose different requirements on different sized businesses.   Some larger firms can choose to pay estimated taxes for the current month, while some smaller firms are required to file and pay only quarterly or annually. For most business, however, the key deadline comes on the 24th day of the month.  On that date, final statements and payments for taxes owed in the previous month are due.

The tax payment deadlines suggest that revenues received by the state during a month primarily reflect taxable sales from the previous month.  An examination of the raw data supports this timing convention.  For example, when the special conservation tax was implemented in 2001—and again when the earmarked educational adequacy tax was introduced in 2004—revenues received in the first month of implementation were a very small proportion of subsequent months.  The seasonal pattern of sales tax receipts is also indicative:  The most prominent recurrent peak in tax receipts occurs in January, one month after the December retail sales peak.  As the payment regulations indicate, tax receipts reflect a mix of taxable sales from current and previous months.  Nevertheless, the best practical estimate seems to be a simple one-month lag.

So, using receipts from the conservation tax and adjusting the timing to reflect the one-month collection lag, we can calculate a measure of taxable sales.  Monthly data for this series are illustrated in the figure below:

Arkansas Taxable Sales

 Although there is a great deal of month-to-month variability in this measure, recent observations suggest that sales activity reached a low point around mid-2009, with signs of recovery since then.

In interpreting the data, a number of caveats should be considered:

  • The series is labeled “taxable sales” rather than “retail sales” because Arkansas sales and use taxes apply not only to retail transactions, but also to some business-to-business transactions.
  • Some of the monthly variability in the series can be attributed to specific institutional factors in the tax collection process.  For example, the rather sharp upturn observed for December 2009 (reflecting tax collections in January 2010) was partly attributable to “one-time gains from audit payments” [see General Revenue Report for January (FY 2010)].
  • Another previous change in the tax structure should also be mentioned:  in 2004, with the introduction of the educational adequacy tax, the sales tax base was broadened.  Although there is no evident break in the path of total tax revenues, this consideration warns against making direct comparisons between post-2004 and pre-2004 data.  (The expansion of the tax base accounts for a revenue increase of only about 0.5 percent.)
  • The most recent observations in the series should be considered preliminary.  Data for the conservation tax are not explicitly reported in the General Revenue Reports, but are available in the publication Arkansas Fiscal Notes, which is available a few weeks after the initial report.  Until the publication of Arkansas Fiscal Notes, the change in general gross receipts is used as a preliminary approximation.

Given some of these considerations, it is best not to focus on very short-term changes in the data.  The chart below shows the results of averaging the data over calendar quarters.  The chart juxtaposes Arkansas Taxable Sales with a quarterly measure of  U.S. retail sales.

Sources:  U.S. Census Bureau, Arkansas Department of Finance and Administration, Institute for Economic Advancement.
Sources: U.S. Census Bureau, Arkansas Department of Finance and Administration, Institute for Economic Advancement.

A comparison of the measures for Arkansas and the U.S. reveals an interesting pattern:  Sales in Arkansas reached a peak about one quarter later than the U.S., and experienced sharp declines with a similar lag.  Moreover, the percent change from peak to trough is smaller for the Arkansas data than for the U.S.  This pattern is consistent with the notion that Arkansas’ economy was dragged into recession by economic weakness in the rest of the country.  Both measure show increase toward the end of 2009, confirming the general observation that both the national and Arkansas economies are beginning to recover from the recession of 2008-09.