Over five weeks in March and April, Iowa tax revenues dropped 48 percent from the same period a year ago, but most of that is attributed to factors other than the economic downturn caused by the coronavirus pandemic.
The impact of slower economic activity related to COVID-19 and Gov. Kim Reynolds’ disaster emergency proclamation closing restaurants, bars, fitness centers, theaters and casinos won’t be known until later this summer, according to a Legislative Services Agency report Monday. The report showed tax receipts have fallen in nearly all tax categories.
Annual tax revenue began to decrease around April 8, LSA said, with much of that stemming from an Iowa Department of Revenue order granting deadline extensions for filing several types of annual state tax returns and also delaying tax payment due dates associated with tax returns, including individual income and business income tax final payments.
It doesn’t mean there is reason to panic, LSA fiscal analyst Jeff Robinson said.
“I’ve looked at how much money we have now, and we have a lot,” Robinson said about the state’s reserves.
The state ended fiscal 2019 with a $289 million balance. According to research by the Pew Charitable Trust, Iowa could operate for 37 days on its reserves, which include rainy day funds equal to slightly more than 10 percent of the state’s general fund budget of about $8 billion.
So Robinson would not expect the state to experience cash flow problems, but warned the economic consequences of the business closures, restrictions on gatherings and other aspects of the pandemic, combined with extensions on paying taxes, “are likely to be significant.”
The report was prepared before Reynolds eased restrictions on businesses in 77 of Iowa’s 99 counties Monday.
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Revenues from individual income tax withholding and sales taxes decreased modestly — 2.1 percent and 2.6 percent, respectively, LSA reported.
Fuel taxes were up 1.9 percent, but Robinson said that’s probably a matter of when wholesalers send those taxes to the state.
“I expect it to be a huge drop next time,” he said.
Gambling tax receipts were off 81.2 percent or by $26.7 million as a result of the governor’s order closing casinos. That will continue to drop about $6 million a week as long as the closure continues, Robinson said.
While the full COVID-19 impact probably won’t be known until at least August, the picture “seems to be pretty clear at the moment,” Robinson said, “and it’s a little bit surprising that we haven’t had more actual impact.”
See the report here.
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