Staff warns federal tax changes could cut Florida general revenue by $3.5 billion in FY26–27

Mr. Khan (referred to in the hearing as Azar) briefed the committee on the Revenue Estimating Conference update and on the state effect of the federal "1 Big Beautiful Bill Act." Using December 2024–November 2025 final data, staff reported that monthly collections tracked roughly $230 million above estimates through November and that the conference added roughly $500 million for FY25–26 and $70 million for FY26–27 to the forecast overall. However, the conference substantially reduced the corporate income tax forecast, citing weaker recent collections and tariff-related risks.

Staff explained the large near-term fiscal hit — about $3.5 billion in FY26–27 — is primarily driven by retroactive federal provisions (some reaching back to 2022) that accelerate deductions and expensing. Key provisions highlighted were bonus depreciation (immediate expensing on placed-in-service property), broader deductions for certain real property used in production activities, expanded immediate research-and-experimental expensing (including retroactive relief for taxpayers with gross receipts under $31 million), and a larger base for business interest deductions. Staff emphasized that recurring impacts are much smaller (about $370–380 million) and that the cash effect is amplified by retroactivity.

Senators questioned volatility and timing: staff noted corporate collections are concentrated in late fiscal-year months (April–June) and that a few underperforming months can materially change projections. President Gates asked how these numbers relate to a previously stated $6.7 billion multi-year reduction estimate from the state economist; staff said revenue adjustments are only one part of that calculation and that budget-side assumptions also matter. The Appropriations Chair said the budget team had been planning since October and warned the combined effects, including about $1 billion in extra Medicaid costs referenced in the hearing, would create difficult trade-offs; he said moving to prospective (nonretroactive) treatment could reduce the hit substantially.

Committee members were given opportunities to ask follow-ups; staff said the conference used joint committee on taxation analyses and national data to allocate federal impacts to Florida and that final budget decisions remain with appropriations staff as legislation moves forward.