December Revenue Collections Slow
State revenue for the month of December was down when compared to December in 2014. Much of the decline can be attributed to a timing issue that produced a stronger November. For the month, state tax collections were down $25.7 million or 4.4 percent. For the fiscal year, state revenue is up 2.0 percent or $66.6 million. At its December meeting, the Revenue Estimating Conference revised its FY 2016 forecast to call for revenue growth of 3.8 percent for the fiscal year.
Personal income tax collections in December rose by just $4.9 million or 1.4 percent when compared to December 2014. For the year, this category continues to have strong growth. Through six months, personal income tax revenue has increased $101 million or 5.5 percent. The Revenue Estimating Conference projection for FY 2016 calls for 7.0 percent growth.
Sales and Use tax collections were down significantly in December, dropping $28 million or 12.9 percent when compared to December 2014. One of the major factors for this decline was the calendar. With November ending on a Monday, revenue that normally would be deposited at the start of December came in on the last day of November. For the year, sales and use tax collections are up $30 million or 2.1 percent in FY 2016. The REC has called for growth of 3.1 percent in this category.
Once again in December, corporate income tax collections lagged behind last year’s number. For the month, collections were down $10.9 million compared to December 2014 – a drop of 16.2 percent. For the fiscal year, corporate income tax collections are down 14.9 percent. This is a slightly larger decline than the 13.2 percent drop projected by the REC.
One good bit of news from the report was a slowdown in the amount of refunds paid by the state. In December, refund payments were down $17.8 million when compared to December 2014. This slowdown has continued in the first days of January, especially in the corporate income tax category.
Federal Tax Extenders and Iowa Coupling
It seems to have become the norm for numerous tax incentives to expire at the end of the year and then be resurrected (retroactively) at the last minute the next year. It is something that accountants and lawyers have been forced to endure. Who knows how useful incentives like the research and development credit and depreciation provisions would be if they were law for more than 10 days a year? Maybe taxpayers and businesses would actually be able to plan ahead to take better advantage of those incentives.
This could finally be the year that things change. Although 2015 was no different than most years in that the tax extender bill was passed with only a few days left on the calendar—it did come with some permanency.
The bill that was finally signed by the President made the research and development credits and the enhanced section 179 deductions permanent for businesses. Additionally, the enhanced child tax credit, American Opportunity tax credit, teacher supply deduction, and some charitable giving incentives were also made permanent for individuals.
The legislation did not make bonus depreciation permanent however—gradually reducing it and eventually phasing it out completely by 2020. The bill also only extended film and television incentives and tuition deduction through 2016. The cost of the federal tax extender bill is estimated to be about $622 billion over the next ten years.
The story does not end with the federal tax extender bill however—Iowa will have to decide which provisions of the federal bill to couple with and which ones to disallow. The Governor’s plan on coupling according to his Fiscal Year 2017 budget is to not couple at all in tax year 2015. That means that taxpayers would not be able to take advantage of any of those tax extenders that Congress just passed that have an Iowa component when they do their taxes this April.
The Governor then recommends permanently coupling with the Internal Revenue Code in tax year 2016 and moving forward with the exception of Section 179 expensing or bonus depreciation. The Governor’s plan would permanently not couple with those provisions. Section 179 expensing is an accelerated depreciation mechanism for business purposes and bonus depreciation is something similar to that except for larger expenses. The Governor’s recommended coupling provisions are estimated to reduce FY 2016 revenues by $2.1 million and FY 2017 by $27.2 million.
Whatever Iowa decides to couple with or not couple with will be for the legislature to decide—but accountants, lawyers, and businesses want to know as soon as possible.
News from District 96
Well, the legislative session is underway again. It was the usual first week filled with speeches and organizational meetings. Next week we will be getting down to business starting with committee meetings.
On Tuesday morning Governor Branstad gave his Condition of the State Address. If you would like to watch it the video is available on Iowa Public Television’s website. That evening I spoke at the Land Improvement Contractors Association and gave a couple of legislative highlights. The following day Chief Justice Cady gave the Condition of the Judiciary. Wednesday evening I attended the Iowa Association of Business and Industry and met with local members of the Maquoketa Valley REC Board and Tom Yeoman, owner of Yo-Ho.
I always enjoy receiving visits from folks back home. If you have any questions or concerns don’t be afraid to get in touch with me, I’m always happy to help. You can contact me at firstname.lastname@example.org or on my cell (319) 480-1997.