May Revenues Showing Impact from Income Tax Reform

With the fiscal year almost over, the state is performing close to the latest REC forecast.

Iowa’s revenue report for May has been released and the data revealed net General Fund revenue for the month was $189.9 million (-15.4%) below the May 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 May 2022 is detailed below (directly from the LSA Revenue Memo):

• Personal income tax receipts totaled $744.8 million, a decrease of $194.2 million (-20.7%) compared to May 2022.
• Sales/use tax receipts totaled $379.7 million, a decrease of $50.8 million (-11.8%) compared to May 2022.
• Corporate Income Tax receipts received in May 2023 totaled $94.5 million, an increase of $40.2 million (74.0%) compared to May 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 growth in sales/use tax and corporate income tax. While some might be alarmed that the personal income tax is posting -3.2% in collections compared to the previous year, this was expected. 

With multiple pieces of tax-related legislation passed during the 2022 legislative session, some revenue categories are predicted to bring in fewer dollars than last year. The State Revenue Estimating Conference (REC) met in March to offer their final projections for the current (FY23) fiscal year. The REC estimated Iowa’s net revenue for the current fiscal year will be around $9.62 billion, a 0.5% drop from $9.7 billion collected in 2022. However, March’s estimate represents an increase from the $9.5 billion the panel estimated in December. In addition, the Taxpayer Relief Fund has a $2.7 billion balance, which is expected to increase in Fiscal Year 2024 to $3.5 billion. Given these projections, Iowa is undoubtedly in a very strong financial position and ready to entertain more tax reductions.

The year-to-date figures with only one month left of this fiscal year are below (directly from the LSA Revenue Memo), along with the REC forecast:

• The FY 2023 REC personal income tax estimate represents a projected decrease of -2.5% compared to actual FY 2022. When looking at actual collections through May 2023, personal income tax receipts have decreased -3.2%.

• The REC estimate for FY 2023 sales/use tax receipts is a projected decrease of -3.5% compared to actual FY 2022. The actual collections of sales/use tax receipts through May 2023 have increased 2.3%.

• The REC estimate for FY 2023 corporate income tax revenue is a projected increase of 4.6% compared to actual FY 2022. Through May 2023, corporate income tax receipts increased 11.8%.

With the fiscal year almost over, the state is performing close to the latest REC forecast. The personal income tax receipts for May were impacted by the income tax law changes per LSA. This is good news because it shows taxpayers are getting to keep more of their hard-earned money, yet the state is still in a solid financial position to fund its priorities.

The next REC meeting has not been scheduled. The following chart illustrates total General Fund revenues on a month-to-month basis for fiscal year 2023. While total net revenues for the month are below last year’s figures, the year-to-date figures show the state is performing nearly identical to forecast.