DRA presents narrow FY25 ranges, flags uncertainty for FY26–27 growth

Lindsay Stepp, commissioner of the Department of Revenue Administration, told the Senate Ways and Means Committee that most of fiscal year 2025 revenue is already collected and presented low–high estimates for major tax sources, stressing uncertainty for fiscal years 2026 and 2027.

The presentation covered business taxes, meals and rentals, tobacco, the now-repealed interest and dividends tax, the communication services tax, real estate transfer tax and utility property tax. Stepp said the committee’s seat is advantaged because the Senate normally has 10 months of revenue in hand and needs to estimate only the last two months.

Stepp said business taxes are “about 15% below plan” year to date and provided a FY25 range with a low based on performing like prior year and a high that assumes making plan for May and June; for FY26–27 the DRA offered 2%–8% growth scenarios, reflecting wide economic uncertainty. She said “estimates are the primary source of revenue for the business taxes,” and that many businesses have lowered their estimated payments this year.

The DRA reported that meals and rentals tax is performing ahead of plan — about $10 million, or 3.6%, year to date — and attributed growth mostly to meal sales, with rooms and motor vehicle rentals smaller components. The DRA noted the risk that a cooling in international visitors, particularly Canadians, could slow growth and said FY26 low/high scenarios range from flat to about 5% growth.

On the tobacco tax, Stepp said cigarette stamp sales continue to decline while other tobacco products such as e-cigarettes are increasing. FY25 ranges for the tobacco tax are narrow; for FY26–27 DRA used a continued small decline to flat as plausible scenarios. The interest and dividends tax, Stepp noted, has been repealed and the department expects only residual collections in FY26 and none by FY27.

The communication services tax showed a slight year-to-date decline; DRA attributed the trend to allocation of wireless billing from voice (taxable) to data (not taxable) and to shifting communication patterns. The real estate transfer tax was described as a “bright light,” running ahead of prior year and roughly 2.4% below plan year to date but 11% ahead of prior year; FY26–27 growth scenarios were 3%–8% depending on mortgage rates, prices and transaction volumes.

Stepp repeatedly warned that DRA’s information is often “in the rearview mirror” because most of the department’s figures come from estimated payments and returns filed after year end. She recommended the committee use industry testimony to capture more real-time signals.

Committee members asked questions about the effect of changes to credit carryforwards for business taxpayers, the potential impact of lower interest rates on investment and borrowing, cross-border purchases affecting tobacco, and whether local bank lending capacity could constrain growth. Stepp summarized: “This is the hardest revenue estimating that we’ve had to do,” and said her confidence in point estimates is lower than usual because of the high level of uncertainty.

The DRA packet provided to the committee included detailed low/high FY25 ranges and assumed growth rates for FY26–27; committee staff asked members to review those numbers ahead of next week’s vote on the Senate’s revenue projections.