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Iowa General Fund receipts down 7.9% through March 3 as PTET reallocations depress revenues
Summary
A monthly video memo from the nonpartisan Iowa Legislative Services Agency reported a $461 million, 7.9% drop in General Fund receipts through March 3, 2025, driven largely by pass-through entity tax (PTET) timing and reallocations; an individual income tax rate cut effective Jan. 1, 2025, could further slow receipts.
Eric Richardson, senior fiscal analyst with the Iowa Legislative Services Agency, said March 3 receipts for the Iowa General Fund fell by $461 million, a 7.9% decline for fiscal year 2025 year to date.
Richardson said two of the three main revenue sources rose year to date: individual income tax was up 2.7% and sales and use tax increased 1.9%, while corporate income tax receipts fell 20.9%. Insurance and other taxes decreased by $455 million (68.4%), a change Richardson attributed primarily to a decline in pass-through entity tax, or PTET, receipts.
The PTET was introduced in fiscal 2024 with retroactive effect to tax year 2022, Richardson said, which resulted in most PTET revenue being realized in FY 2024 and substantially less in FY 2025. "On a cash fiscal year basis, PTET revenue has decreased by $430 million or minus 75.5% in FY 2025," he said.
Richardson distinguished gross and net revenue trends. Gross revenues through March 3 declined 4.5%; gross personal income tax grew 6.4% (partly because of PTET reallocations) while gross corporate income tax fell 10.1%. Net revenue was weaker mainly because regular refunds rose 41.3%. School infrastructure transfers decreased 4.7%.
The memo compared the March 3 growth calculation with the earlier February calculation and found growth through March 3 was $1 million lower than growth through Feb. 3, driven by a $64 million decrease in net income tax receipts partially offset by a $67 million increase in net sales and use tax receipts. Richardson also noted ongoing processing of tax credits in FY 2025 for prior-year PTET collections, which reduces other tax lines as reallocations are made to personal income tax.
Richardson warned the recent change in Iowa law that reduced the top individual income tax rate from 5.7% to a flat 3.8% effective Jan. 1, 2025, "may begin to slow individual income tax revenue for the remainder of this fiscal year and into FY 2026." He also noted previously enacted rate reductions for the franchise tax, inheritance tax, and insurance premium tax are expected to weigh on net revenue growth for FY 2025.
The memo placed the March 3 year-to-date net growth of negative 7.9% below the December 2024 Revenue Estimating Conference projection for the full fiscal year, which expected negative 6.2% growth. Richardson said the next Revenue Estimating Conference is scheduled for March 13 and that the March REC should provide a clearer outlook for FY 2025 and beyond.
Less central details from the memo included the accounting constraint that revenue updates at the start of a month are delayed until transactions are processed, which in this reporting period meant receipts were presented through March 3 rather than through March 1.
