This amount equated to a growth rate of 0.3 percent when compared to July 2014. The slow growth rate for the initial month of the new fiscal year is a concern, when revenue fore- casts have projected revenue growth for the year of $345 million, or 5.1 percent.
Personal income tax grew at a very strong 6.4 percent for the month. LSA has said that for the state to be in a posi- tion of solid economic growth, this cate- gory has to experience growth at 5 per- cent or higher. So this month’s number is an indicator of solid growth in the state. The July number is slightly below the FY 2016 Revenue Estimating Confer- ence projection of 6.8 percent growth for personal income tax collections.
While sales and use tax collections were higher July 2014, the amount of growth was only 1.9 percent. The REC projec- tion is for 5 percent growth in this catego- ry. Over the past few months growth in this sales and use tax collections has been such that it bears watching. Reve- nue from this category started out strong in Fiscal Year 15, but slowed down dur- ing the part of the fiscal year. That trend appears to be continuing into FY 2016.
Corporate income tax collections slowed down in July, falling 10 percent below July 2014. But that difference is only $2.2 million. The REC projection is for corporate tax collections to fall by 2.8 percent during the fiscal year.
Gross receipts by the state (taxes plus other revenue streams) were actually up 5.1 percent ($23.9 million) over July
2014. But tax refunds paid out by the state grew by 57.3% ($22.8 million) over July 2014. Part of that increase was school infrastructure sales tax payments rising by 20.9 percent. Those amounts basically wiped out the growth experi- enced by the state last month.
What is the cause of the spike in refunds last month? It was driven by three areas – sales and use tax refunds, individual income tax refunds, and school infra- structure sales tax payments to schools. According to LSA, the state has seen a significant rise over the past six months in sales and use tax refunds. During that period, the state has paid out $42.9 mil- lion in sales and use tax refunds, while the normal amount during this period is $19.2 million. These refunds usually are the result of economic development pro- grams or contested cases with the De- partment of Revenue.
In terms of individual income tax refunds, the state paid out $7 million more in re- funds in July than the previous year. That increase amounts to 1 percent of all the individual refunds paid by the state during the year and this category has remained relatively stable over the past year. School infrastructure payments were also $7 million higher this July.
Is Iowa alone in experiencing these con- ditions? No. While a number of sur- rounding states have yet to release their July revenue data, the one state which has disclosed their figures had a similar experience. Missouri’s net revenue for the month was down 1.2 percent when compared to last year. Like Iowa, they experi- enced solid growth in personal income tax collections, while having a slight decline in sales and use tax. Missouri also saw their revenue growth wiped out by a significant increase in refunds. They experienced a 42.2 percent increase in refunds last month.