Capitol Letters: State revenue continues solid start to fiscal year 2027

State Rep. Megan Jones

State revenue remained on the positive side of the ledger through two months of Fiscal Year 2027. According to the Legislative Services Agency, net receipts have increased by $102 million or 7.2% through August.

Sales and use tax collections continue to drive the revenue figures. For the first two months of FY 2027, this category is running 12.2% higher than the same time period last fiscal year. This amounts to an increase of $114 million.

Personal income tax collections are also growing when compared to FY 2026. Through August, these payments have seen a two percent increase over the previous fiscal year. The 2024 personal income tax reduction to 3.8% was fully implemented in FY 2026, so this category will move as the economy goes.

Another area that is resulting in higher revenue to the state is tax refunds. The amount of refunds paid out by the state in July and August are $28 million lower than in FY 2026. This change is likely due to the lower income tax rates and changes in withholding tables.

The state is also closer to closing the books on Fiscal Year 2026. The final number for tax refunds was settled at the end of August with the state paying out $126 million less in tax refunds than what the Revenue Estimating Conference had predicted. Again, the drop in this amount is related to the 2024 income tax rate reductions and the updates to withholding tables to reflect the new 3.8% personal income tax rate for Iowa taxpayers.

When the refund number is combined with actual revenue collected, FY 2026 revenue is $161 million ahead of what the REC predicted at its last meeting in March. There are still three items that need to be finalized:

• School Infrastructure payments will have one final adjustment in September. Overall, the REC projected that schools would receive $722 million from the state for this. At the end of August, the amount was at $733 million for year.

• Accrued revenue, which is tax revenue which comes into the state in July or August but is the result of activity before July 1. The REC had forecast that this amount would be an additional $10 million. The final number will be set when the state’s accounting books are closed at the end of September.

•  Transfers, which are revenue from Lottery sales, fees paid to departments, and other proceeds that are deposited into the General Fund. The REC forecast is for $123 million to be deposited, with the bulk of that coming from the Lottery. This figure will also be finalized when the FY 2026 books are closed.

But even before these final items are added, it appears that state revenue came in stronger in Fiscal Year 2026 than what the REC and some outside skeptics thought it would.

Contact Jones by email: megan.jones@legis.iowa.gov