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That could mean trouble for key parts of Gov. Mike Pence's agenda, including more funding for highway projects and a state-funded pre-kindergarten program.
But a key Senate fiscal leader said he's "not too worried" about the lost revenues, in part because much of the spending would be pushed into the next budget.
Total tax revenues were 7.1 percent below projections made in December, according to a monthly state revenue report released Friday. The governor blamed the winter weather.
"Due to severe winter weather that affected Hoosiers all across the state, this revenue report was not unexpected," Pence said. "Our administration is confident that we will be able to manage budgetary resources in a way that preserves Indiana's fiscal integrity."
But even as Pence blamed the snow and ice, the revenue report shows that sales tax receipts were only a part of the issue. Sales tax collections were 3.7 percent below the target.
Individual income tax collections, though, were down 35 percent. State officials said that's in part because the Department of Revenue processed more tax returns in February than expected, which means the state sent out more refunds.
But Democrats questioned the governor's reaction.
"I remember how he reacted last year when numbers were down: cutting 2 percent in state support from higher education and 3 percent from other appropriations," said Rep. Gregory Porter, D-Indianapolis. "Is it time to take another shot at a K-12 system that already is buckling under past cuts and the ongoing devotion to pumping up private schools at the expense of public schools?"
Pence has asked lawmakers to fund preschool for all poor children in Indiana and release $400 million in funding for highway projects.
The House approved a preschool pilot program and the $400 million for roads. The Senate approved only a study of preschool and $200 million for roads, citing concerns about the state's finances.
Senate President Pro Tem David Long, R-Fort Wayne, said earlier this week that lawmakers must consider budget issues as they negotiate final deals on the highway and preschool bills.
"A lot of this stuff needs to be decided next year when we do the budget, so execution depends on having the money to do it and fulfilling what you are telling the people you want to do," said Senate Appropriations Chairman Luke Kenley, R-Noblesville.
"I am not too worried about all that," Kenley said. "And I think we will see some product on those issues."
But Porter said, "These problems cannot be ignored. They shouldn't be ignored."
Erika Brock and Jess Seabolt are reporters for TheStatehouseFile.com, a news service powered by Franklin College journalism students and faculty.