October Revenues Set Back by Interest and Dividends Tax Repeal

State revenues collected in October fell below the State’s target amounts for the month, primarily because of the repeal of the Interest and Dividends Tax resulting in difficult-to-predict final revenues as taxpayers collect refunds. Other revenue sources offered a mixture of signals, with some major revenue sources performing well and others slipping behind expectations.

Slipping Further Behind the Annual Target

Combined October revenues flowing to the General Fund and the Education Trust Fund were $12.2 million (7.9 percent) below the target set by the State Revenue Plan, which is designed to match planned State Budget spending and revenue forecasts. Revenues were below last October’s collections by $21.6 million (13.2 percent), unadjusted for inflation.

Overall, General and Education Trust Funds revenues so far for State Fiscal Year (SFY) 2026, which began July 1, are $29.4 million (4.0 percent) below the State Revenue Plan’s target for this point in the year, and $58.7 million (7.7 percent) behind last year’s collections.

Mixed Results from Different Sources

The primary driver of lower revenues in October was the decline in Interest and Dividends Taxrevenue, which was $20.3 million below expectations and $20.7 million below the prior year. Slightly less than half of this loss was offset by Lottery Commission revenues that were $8.9 million (53.6 percent) higher than the target for the month and $4.3 million (20.3 percent) above October of last year, reportedly due to Powerball sales.

Other major revenue sources were closer to their targets. Combined revenues from the two business taxes were $1.1 million (3.1 percent) short of target in October, and are $26.6 million (9.5 percent) below planned amounts for the year thus far. However, October saw a small bump to business tax revenues compared to last year, with receipts rising $2.3 million (7.1 percent) above last October’s collections and reducing the year-over-year deficit in business tax revenues to $18.9 million (6.9 percent) lower than last year. These two major tax revenue sources, which were a primary source of revenue growth in recent budget cycles, remain a drag on today’s State revenue picture.

Collections from the Meals and Rentals Tax slipped behind expectations by $1.0 million (3.2 percent), and while they remained above prior year, the Meals and Rentals Tax is now contributing to the cash revenue deficit, rather than helping offset it. Tobacco Tax revenues slightly surpassed their targets in October, and are $2.0 million (3.1 percent) in surplus for the year, but are only matching last year’s totals. Transfers from the Liquor Commission were pushed down by lower alcohol sales and lower profits due to an additional pay period for staff in the month; revenues to the General Fund were $0.9 million (9.3 percent) below planned amounts for the month, and are $4.0 million (12.2 million) short for SFY 2026 thus far.

Other revenue sources performed better in October. Real Estate Transfer Tax revenues were above both planned amounts for the month and last year, reducing the October revenue deficit by $1.4 million after coming in 6.6 percent above planned amounts for the month. However, Real Estate Transfer Tax revenues were still below plan for the year, despite being above last year’s totals, signaling that the rebound in revenues has not been quite as fast as policymakers expected.

Revenue from newly-legalized video lottery terminals has not started to arrive in State offers as quickly as policymakers expected; this delay contributed to the revenue deficit in October, but video lottery terminals are in operation now and will start generating revenue to be recorded next month, according to the State. Insurance Premium Tax revenues also generated a small, $0.5 million surplus over expectations for the month.

Interest on State cash holdings continues to help boost State resources, but it is a waning revenue source. Interest on cash holdings has generated $13.9 million more than planned in SFY 2026 thus far, but is $15.8 million behind the revenue generated at this point in SFY 2025.

Interest and Dividends Tax Repeal Impacts State Revenue Plan

Despite being repealed effective January 2025, the Interest and Dividends Tax continues to be a drag on State revenues relative to expectations. The State expected to continue to collect revenue from Tax Year 2024 in returns, extension payments, and later filings from taxpayers, and revenues have come in since the repeal date. For example, a significant amount of the tax revenue resulting from taxable income generated from wealth, such as stock dividends and distributions, came through Interest and Dividends Tax filings made in April 2025.

The State anticipated that there would be lingering tax returns, audits, and other late-arriving payments from the Interest and Dividends Tax. Instead, the repeal of the tax resulted in a larger volume of refunds than expected.

October revenues from the Interest and Dividends Tax generated a net negative impact on the General Fund as a result. The State anticipated collecting a net of $5.2 million in payments from prior years in Interest and Dividends Tax revenue in October, but instead paid out a net of $15.1 million in refunds. The Department of Revenue Administration reportedbelieving that the majority of refunds have been paid after these October payments.

The Interest and Dividends Tax repeal has resulted in both a drop in revenue relative to the prior year, which is expected when a tax is repealed, as well as a revenue deficit relative to expectations. Revenues are $47.3 million less than last year so far in SFY 2026, and are $22.0 million below planned amounts for the fiscal year thus far, most of which is due to the October shortfall.

No Cushion Now, But Most is Yet to Come

A surplus of these revenues would provide the State with access to flexible revenues to address short-term challenges, such as filling budget holes generated by the federal government shutdown, or to fund new legislation in 2026, which is not a year when the Legislature will be considering a new State Budget.

However, the State is not running such a surplus currently. State revenues are $29.4 million (4.0 percent) short of their year-to-date target for the General and Education Trust Funds. That revenue deficit represents almost one percent of the total $3.1 billion plan for revenues in SFY 2026.

That shortfall is not insurmountable, but is significant given that State revenue trends have not been suggesting a strong upswing is imminent. State coffers may be lucky with incoming revenues from the new video lottery terminals, and other revenue sources could improve to help fill in the current gap. However, revenue shortfalls this early in the first State fiscal year of a new budget biennium, combined with uncertainty surrounding the economy and the federal government, suggests New Hampshire may face more fiscal challenges in the future.

Phil Sletten is the research director of the New Hampshire Fiscal Policy Institute.