First Half of Fiscal Year Sees Slight Revenue Dip

Total net receipts YTD are 0.7% less than last year, with a reduction in personal income tax and growth in sales/use tax and corporate income tax.

Iowa’s revenue report for December has been released and the data revealed net General Fund revenue for the month was $11.1 million (-1.3%) below the December 2022 net revenue level. When broken down by the three largest sources (personal income tax, sales/use tax, and corporate income tax), revenue compared to December 2022 is detailed below (directly from the LSA Revenue Memo):

• Personal income tax receipts totaled $370.1 million, a decrease of $62.5 million (-14.4%) compared to December 2022.
• Sales/use tax receipts totaled $340.7 million, an increase of $5.1 million (1.5%) compared to December 2022.
• Corporate Income Tax receipts received in December 2023 totaled $94.8 million, a decrease of $34.9 million (-26.9%) compared to December 2022.

Since month-to-month comparisons can be volatile, it may be even more important to consider year-to-date information, as well.  Total net receipts YTD are -0.7% less than 2022, with a dip in personal income tax, and growth in sales/use tax and corporate income tax.

As the calendar turns over to 2024, some tax categories continue to be predicted to bring in less revenue than last year due to multiple pieces of legislation passed during the 2022 legislative session, including historic tax cuts.  Iowa’s general fund is in the habit of collecting surplus tax dollars and the tax cuts that are being phased-in are intended to reduce those receipts and allow Iowans to keep more of their hard-earned money.

The Revenue Estimating Conference (REC) met on December 13, 2023, to evaluate the current (FY24) and next (FY25) fiscal years. December REC meetings are noteworthy because this projection establishes limits that must be followed by the Governor in developing the State’s budget.

Given those legislative changes, the REC’s most recent projection forecasts a decrease of -1.3%.  The year-to-date figures for the first six months of this fiscal year are below (directly from the LSA Revenue Memo), along with the December REC forecast:

• The FY 2024 REC personal income tax estimate represents a projected decrease of -6.7% compared to actual FY 2023. Through December 2023, personal income tax receipts decreased    -12.6%.
• The REC estimate for FY 2024 sales/use tax receipts is a projected increase of 5.1% compared to actual FY 2023. Through December 2023, sales/use tax receipts increased 7.7%.
• The REC estimate for FY 2024 corporate income tax revenue is a projected increase of 1.5% compared to actual FY 2023. Through December 2023, corporate income tax receipts increased 2.3%.

Large sums of revenue are historically received in January, which will provide an even better understanding of the state’s revenue trend.  The next revenue memo will give us a look at how the tax reforms are impacting revenue as January 1 was the implementation date of another round of tax changes. The personal income tax now only has three brackets  with a top rate of 5.7% and the top inheritance tax rate is cut in half to 2%, on its way to being completely phased out next year. Meanwhile, the corporate income tax sees a rate drop from 8.4% to 7.1%.

The following chart further illustrates total General Fund revenues on a month-to-month basis.