Iowa net general fund receipts down $170 million (10.6%) through Sept. 4; income tax cut cited

Eric Richardson, senior fiscal analyst for the Iowa Legislative Services Agency, said in the agency’s August 2025 monthly revenue memo that Iowa net general fund revenue for cash fiscal year 2026 decreased $170,000,000, or 10.6 percent, through Sept. 4 compared with the same period a year earlier.

Richardson told viewers the shortfall so far is driven primarily by a $128,000,000 drop in individual income tax receipts — including a $109,000,000 fall in income tax withholding — tied to the state’s reduction of the individual income tax rate to 3.8 percent effective Jan. 1, 2025. He said corporate income tax receipts were also down $24,000,000.

The presentation also flagged a large swing in the tax suspense account related to the timing of monthly filing due dates. Richardson said a 06/30/2024 due date fell on a weekend, pushing some returns and remittances into 07/01/2024 and creating a roughly $71,000,000 positive balance on the first business day of that fiscal year. By contrast, he said the 06/30/2025 due date fell on a weekday, which produced a negative $127,000,000 balance in the suspense account after the first business day of cash FY2026 and contributed to the year-over-year decline. He said that suspense-account timing will be adjusted during the accrual process at fiscal-year close.

Sales and use tax deposits improved, Richardson said, rising $29,000,000 since July 1, and tax refunds processed so far for cash FY2026 are $69,000,000 lower than a year earlier, which partially offsets the declines elsewhere.

On FY2025 final results, Richardson said gross general fund revenue at June 30 was about $110,000,000 below the March Revenue Estimating Conference projections. He said gross individual income tax collections finished $561,000,000 below projections and that “other taxes” exceeded estimates by $403,000,000, mainly because of PTAC revenue that Richardson said may be refunded later through a tax credit. Sales and use tax for FY2025 were down about $42,000,000, he said.

Richardson outlined three remaining FY2025 accounting items that could change the final net revenue totals when state accounting closes later in September: the final adjustment of the one-sixth sales-tax transfer to local school infrastructure, accrued revenue that must be assigned to FY2025 or FY2026, and miscellaneous transfers (about $114,000,000 projected for the year, largely lottery receipts). For FY2025 the school-infrastructure transfers were budgeted to remove $701,000,000 from net revenue; through August, those transfers totaled $694,000,000. Richardson said the amount of the final September transfer is not predictable and has varied in prior years, averaging about $5,000,000 but ranging from a negative $8,000,000 to nearly $37,000,000.

He added that the FY2025 adjustment for accrued revenue is budgeted to subtract $102,000,000 from final net revenue and that refunds for FY2025 finished the August close $1,000,000 lower than the March REC refund projection. Taken together, Richardson said the known cashier receipts and refunds leave net revenue about $109,000,000 below the March projections before the remaining September accounting adjustments.

Richardson said once the state completes the September accounting closure and applies the remaining transfers and accruals, officials will have final FY2025 results and an initial fiscal-year view of FY2026. Given the figures available at the time of the memo, he said it is probable FY2025 net revenue will end slightly below the Revenue Estimating Conference projections.

Richardson concluded by noting the next monthly video memo will be posted in early October and will review the final FY2025 net revenue results and present the first fiscal-year look at FY2026.