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Government

Iowa on pace to top revenue projection

Federal tax changes lower Iowans' state deductions

The Iowa State House cupola on Thur. Mar 11, 2016. (Rebecca F. Miller/The Gazette)
The Iowa State House cupola on Thur. Mar 11, 2016. (Rebecca F. Miller/The Gazette)

DES MOINES — The state of Iowa is having a better-than-expected tax collection year, thanks mostly to federal tax changes.

With less than a full month remaining in the current fiscal year, net receipts flowing into the Iowa treasury approached $7.07 billion — a 7.8 percent growth rate that was about $515 million more than state taxes collected during the first 11 months of fiscal 2018, according to the nonpartisan Legislative Services Agency.

The robust rate of tax collections likely means the state will finish fiscal 2019 on June 30 well above the yearly growth estimate of 4.8 percent set by the Revenue Estimating Conference. The conference had projected overall receipts would net out at $7.611 billion for the 12-month period.

“It definitely looks good,” Jeff Robinson, a senior tax analyst for the Legislative Services Agency, said on Monday.

He attributed much of Iowa’s $514 million jump in tax collections to the cuts in federal income tax rates that took effect for Iowans in February 2018 — especially a $151.6 million bounce the state treasury got from federal corporate income tax rate reductions.

Iowa is one of the few states where residents can deduct their federal income tax liabilities from their state income taxes. That current feature of the Iowa tax code, called federal deductibility, means that when federal tax rates fall — as they did beginning in February 2018 — Iowa taxpayers were able to deduct less from their state bill.

“Tax year 2018, if you’re talking about income taxes, ... we were nothing but benefits from the feds,” Robinson said.

“That’s why we saw a really good tax return season because people didn’t have near as much federal tax payments to deduct. Federal deductibility had less of an impact, and therefore it acted like a tax increase.”

The Republican-run Legislature last session approved a phase-in state income reduction program that took effect Jan. 1 for tax year 2019. It affected some state income withholding tables but won’t show up on individual tax returns until Iowans file from January to the April 30 deadline next year.

Some state sales tax changes also took effect Jan. 1 and likely factored into the second half of the current fiscal year.

Overall, state income tax collections through May totaled nearly $4.565 billion, a 4.4 percent increase that translated into an extra $191.4 million so far for fiscal 2019.

Sales/use tax receipts topped $2.817 billion, a 3.8 percent increase of $102.8 million and Iowa corporate income taxes netted $609.5 million — which was up more than 33 percent, Robinson said.

“We expected a rather big jump in corporate income tax receipts this year because of corporate federal deductibility,” he said, noting that federal rates were lowered significantly and Iowans can deduct up to 50 percent of their liability on their state returns.

“The income tax that people owed was quite a bit higher as a group because their federal deduction fell 12 percent as a group when usually it goes up every year, but this year it fell so that resulted in predictably income tax increases for Iowa,” Robinson said.

The Legislative Services Agency monthly revenue report can be found at https://bit.ly/2MGhinF.

• Comments: (515) 243-7220; rod.boshart@thegazette.com

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