New Tax System Had Minimal Impact on January Revenues

Total net receipts YTD are 3.8% more than 2022, with growth in personal income tax, sales/use tax, and corporate income tax.

Iowa’s revenue report for January has been released and the data revealed net General Fund revenue for the month was $0.1 million (0.1%) above the January 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 January 2022 is detailed below (directly from the LSA Revenue Memo):

• Personal income tax receipts totaled $493.2 million, a decrease of $36.7 million (-6.9%) compared to January 2022.
• Sales/use tax receipts totaled $450.6 million, an increase of $118.6 million (35.7%) compared to January 2022.
• Corporate Income Tax receipts received in January 2023 totaled $72.9 million, an increase of $15.2 million (26.3%) compared to January 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 3.8% more than 2022, with growth in personal income tax, sales/use tax, and corporate income tax.

As the calendar turned over to 2023, some tax categories are predicted to bring in less revenue than last year due to multiple pieces of legislation passed during the 2022 legislative session, including the historic tax cuts. The State Revenue Estimating Conference (REC) met on December 14, 2022, to evaluate the current (FY23) and next (FY24) fiscal years. December REC meetings are noteworthy because this projection establishes limits that must be followed by both the Governor and by the Legislature in developing the State’s budget.

Given those legislative changes, the REC’s most recent projection forecasts a revenue decrease of -1.9%.  The year-to-date figures for the first seven months of this fiscal year are below (directly from the LSA Revenue Memo), along with the December REC forecast:

The FY 2023 REC personal income tax estimate represents a projected decrease of 3.5% compared to actual FY 2022. Through January 2023, personal income tax receipts increased 6.2%.

The REC estimate for FY 2023 sales/use tax receipts is a projected increase of 3.4% compared to actual FY 2022. Through January 2023, sales/use tax receipts increased 5.9%.

The REC estimate for FY 2023 corporate income tax revenue is a projected increase of 3.6% compared to actual FY 2022. Through January 2023, corporate income tax receipts increased 10.1%.

With seven months of the fiscal year behind us, the state is continuing to outperform last year.  February and March typically bring in lower levels of revenue, leaving the last quarter of the fiscal year to determine the result of the fiscal year. While January was the first month under the new tax system, the LSA memo states there was minimal negative revenue impact.

The April and June revenue memos will give us a look at how the tax reforms are beginning to impact revenue since that will include the first quarterly income tax payments. The personal income tax now only has four brackets with a top rate of 6 percent and retirement income is exempt. The corporate income tax saw a rate drop from 9.8 percent to 8.4 percent and the sales tax has new exemptions.

The next REC meeting has not been scheduled. The following chart further illustrates total General Fund revenues on a month-to-month basis.