Division of the Budget
Landon State Office Building Phone: (785) 296-2436
900 SW Jackson Street, Room 504 adam.c.proffitt@ks.gov
Topeka, KS 66612 http://budget.kansas.gov
Adam C. Proffitt, Director Laura Kelly, Governor
Division of the Budget
January 30, 2024
The Honorable Adam Smith, Chairperson
House Committee on Taxation
300 SW 10th Avenue, Room 346-S
Topeka, Kansas 66612
Dear Representative Smith:
SUBJECT: Fiscal Note for HB 2586 by House Committee on Taxation
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2586 is
respectfully submitted to your committee.
HB 2586 is a comprehensive tax bill that reduces retail sales, compensating use, individual
income, financial institutions privilege, and property taxes. The bill would reduce the state retail
sales tax and compensating use tax rate for food and food ingredients to 0.0 percent and would
change the distribution of overall state sales and compensating use tax revenue to 82.0 percent to
the State General Fund and 18.0 percent to the State Highway Fund on April 1, 2024. Under
current law, the state retail sales tax rates specifically on food and food ingredients and the
distribution of overall state sales and compensating use tax revenue are set to be adjusted as
follows:
Date of Percent to Percent to
Rate Change Tax Rate State General Fund State Highway Fund
Current law 2.0 83.0 17.0
January 1, 2025 0.0 82.0 18.0
The bill would provide a sales tax exemption for diapers and feminine hygiene products
beginning on April 1, 2024. The bill includes definitions for diapers and feminine hygiene
products.
The bill would create a sales tax holiday for back-to-school related sales of certain items.
The sales tax holiday would begin on the first Thursday in August at 12:01 a.m. and end at
midnight on the following Sunday. The bill would exempt all back-to-school related sales of:
The Honorable Adam Smith, Chairperson
Page 2—HB 2586
1. Any article of clothing or clothing accessories with a sales price of $300 or less per item;
2. All school supplies, school instructional materials, or school art supplies with a sales price
of $100 or less per item;
3. All prewritten computer software with a sales price of $300 or less per item; and
4. All computers or school computer supplies with a sales price of $2,000 or less per item.
The bill provides definitions for clothing, clothing accessories or equipment, school
supplies, school instructional materials, school art supplies, school computer supplies, and other
items used to implement the back-to-school sales tax holiday. The first back-to-school sales tax
holiday would occur in August 2024.
Under current law, taxpayers filing as single, head of household, married filing separate,
or married filing jointly are allowed to subtract the full amount of Social Security benefits from
federal adjusted gross income for Kansas income tax purposes, if the taxpayer has income of
$75,000 or less. The bill would exempt all Social Security benefits from the individual income
tax regardless of income amounts beginning in tax year 2024.
Under current law, the standard deduction for the calculation of Kansas income taxes is set
at $3,500 for single individual taxpayers, $8,000 for married filing joint status, and $6,000 for head
of household. The bill would increase the standard deduction to $5,000 for single individual
taxpayers, $10,000 for married filing joint status, and $7,500 for head of household beginning in
tax year 2024 and annually thereafter.
Under current law, the non-refundable income tax credit for expenses for household and
dependent care services necessary for gainful employment (more commonly referred to as the
Child and Dependent Care Tax Credit) is set at 25.0 percent of the credit claimed against the
taxpayer’s federal income tax liability under Section 21 of the federal Internal Revenue Code in
tax year 2024 and in all future tax years. The bill would set the tax credit at 50.0 percent in tax
year 2024 and in all future tax years.
The bill would reduce the privilege normal tax rate for banks from 2.25 percent to 1.94
percent in tax year 2024 and 1.63 percent in tax year 2025. The bill would reduce the privilege
normal tax rate for trust companies and savings and loan associations from 2.25 percent to 1.93
percent in tax year 2024 and 1.61 percent in tax year 2025.
Under current law, $42,049 of a residential property’s appraised valuation is exempt from
the state’s 20-mill property tax for public schools in tax year 2023, with a statutory increase of the
exemption in tax year 2024 based upon the ten-year average percentage change in statewide
valuation of all residential real property. The bill would increase the exemption to $100,000
beginning in tax year 2024 and would eliminate future exemption increases based on the ten-year
average change in residential property values. The bill would take effect upon publication in the
Kansas Register.
The Honorable Adam Smith, Chairperson
Page 3—HB 2586
Estimated State Fiscal Effect
FY 2024 FY 2025 FY 2026
Expenditures
State General Fund -- ($84,852,347) ($81,300,000)
Fee Fund(s) -- -- --
Federal Fund -- -- --
Total Expenditures -- ($84,852,347) ($81,300,000)
Revenues
State General Fund ($22,000,000) ($346,100,000) ($216,500,000)
State Highway Fund (4,500,000) (17,600,000) (2,600,000)
School District Finance -- (84,800,000) (81,300,000)
Total Revenues ($26,500,000) ($448,500,000) ($300,400,000)
FTE Positions -- -- --
The Department of Revenue estimates that HB 2586 would decrease state revenues by
$26.5 million in FY 2024, including an estimated $22.0 million reduction of State General Fund
(SGF) revenues and a $4.5 million reduction of State Highway Fund (SHF) revenues. For FY
2025, the bill is estimated to decrease state revenues by $448.5 million, including an estimated
$346.1 million reduction of SGF revenues, a $17.6 million reduction of SHF revenues, and an
$84.8 million reduction of State School District Finance Fund revenues. The estimated fiscal
effect by specific tax policy change would be as follows:
Tax Changes (SGF) FY 2024 FY 2025 FY 2026
State Food Sales Tax Changes ($20,800,000) ($72,600,000) $ --
Diapers Exemption (800,000) (4,800,000) (4,800,000)
Feminine Hygiene Prod. Exemp. (400,000) (2,300,000) (2,300,000)
Back-to-School Sales Tax Holiday -- (4,800,000) (4,900,000)
Social Security Exemption -- (152,100,000) (120,700,000)
Standard Deduction Increase -- (90,500,000) (70,400,000)
Child & Dependent Care Credit -- (6,000,000) (6,000,000)
Privilege Tax Rate Reduction -- (13,000,000) (7,400,000)
Total SGF ($22,000,000) ($346,100,000) ($216,500,000)
Tax Changes (SHF)
State Food Sales Tax Changes ($4,200,000) ($15,000,000) $ --
Diapers Exemption (200,000) (1,000,000) (1,100,000)
Feminine Hygiene Exemption (100,000) (500,000) (500,000)
Back-to-School Sales Tax Holiday -- (1,100,000) (1,000,000)
Total SHF ($4,500,000) ($17,600,000) ($2,600,000)
Tax Changes (Property Taxes)
20-mill School Levy Exemption $ -- ($84,800,000) ($81,300,000)
Total (SGF+SHF+Property Taxes) ($26,500,000) ($448,500,000) ($300,400,000) The Honorable Adam Smith, Chairperson
Page 4—HB 2586
To formulate the estimates of the sales tax exemption for food and food ingredients, the
Department assumes that expenditures on food and food ingredients will be comparable to
expenditures observed during calendar year 2023, the first year of the rate reduction. The fiscal
note considers the three-year phase-out of state retail sales tax and compensating use tax rate for
food and food ingredients that was enacted in 2022 HB 2106.
To formulate the estimates of the sales tax exemption for diapers and feminine hygiene
products, the Department of Revenue reviewed data from the U.S. Bureau of Labor Statistics
Consumer Expenditure Survey and the Kansas Department of Health and Environment. These
provisions of the bill are estimated to decrease local sales tax revenues; however, the specific
estimate of lower local sales tax revenues was not calculated by the Department of Revenue.
To formulate the estimates of a back-to-school sales tax holiday, the Department reviewed
data on state sales tax collections and consumer expenditure data. Data from other states indicate
there is an increase in purchases during a sales tax holiday that ranges from “slight” to a five-fold
increase in purchases and corresponding decreases in sales volume before and after the holiday
period as shoppers shift their purchases to take advantage of the sales tax holiday. For the Kansas
sales tax holiday, it is assumed that sales during the four-day period would be at least triple the
normal purchases, with corresponding decreases in sales volume before and after the sales tax
holiday period. This provision of the bill is estimated to decrease local sales tax revenues;
however, the specific estimate of lower local sales tax revenues was not calculated by the
Department of Revenue.
To formulate the estimates of the exemption of Social Security benefits from individual
income, the Department reviewed data on Social Security benefits from tax year 2020. The
Department adjusted the amount of Social Security benefits to account for cost-of-living
adjustments that have occurred since tax year 2020 and used an average growth rate of 3.0 percent
for future years. The Department created a simulated tax table for all taxpayers that receive Social
Security benefits and considered the $75,000 Social Security benefits exemption that is currently
allowed for each tax filing type.
To formulate the estimates of the increased standard deduction amounts, the Department
simulated this tax policy change based on actual tax return data from tax year 2021. The
Department estimates that the number of tax returns would grow by approximately 1.0 percent
each year.
To formulate the estimates of the larger Child and Dependent Care Tax Credits, the
Department reviewed recent data from the Internal Revenue Service on the amount of federal Child
and Dependent Care Tax Credits that were claimed by individual income taxpayers. The
Department indicates that approximately $6.0 million in tax credits would be claimed by individual
taxpayers in tax year 2024 under current law that allows taxpayers to claim 25.0 percent of the
federal credit. Allowing taxpayers to receive 50.0 percent of the federal credit in tax year 2024
would allow taxpayers to claim an additional $6.0 million, or a total of $12.0 million in tax credits
in tax year 2024 or FY 2025.
The Honorable Adam Smith, Chairperson
Page 5—HB 2586
To formulate the estimates of the privilege normal tax rate reduction for banks, trust
companies, and savings and loan associations, the Department reviewed financial institutions
privilege tax data from tax year 2021.
The Department of Revenue estimates that the residential appraised value exemption would
be $44,702 in tax year 2024 (FY 2025) and under current law will increase in future tax years by
the ten-year average percentage change in statewide valuation of all residential real property.
Increasing the exemption from $44,702 to $100,000 would result in a reduction of property tax
revenues generated from the 20-mill school levy totaling $84.8 million in FY 2025 and $81.3
million in FY 2026.
The Division of the Budget notes that the estimated reduction in revenues from the 20-mill
school levy would require an offsetting appropriation for State Foundation Aid from the State
General Fund to keep the Base Aid for Student Excellence (BASE) in the school finance formula
at $5,381 for FY 2025, as included in The FY 2025 Governor’s Budget Report. If this provision
of the bill would be enacted without a corresponding increase to the State General Fund
appropriation for State Foundation Aid, the Department of Education would have to prorate the
BASE by reducing state aid to school districts in FY 2025.
The Department of Revenue indicates that the bill would require $52,347 from the State
General Fund in FY 2025 to implement the bill and to modify the automated tax system. The
required programming for this bill by itself would be performed by existing staff of the Department
of Revenue. In addition, if the combined effect of implementing this bill and other enacted
legislation exceeds the Department’s programming resources, or if the time for implementing the
changes is too short, additional expenditures for outside contract programmer services beyond the
Department’s current budget may be required.
The Kansas Department of Transportation (KDOT) indicates that the bill would reduce
state revenues to the State Highway Fund as noted above. KDOT indicates that when the state
receives lower State Highway Fund dollars it may be required to make corresponding reductions
to planned expenditures for projects funded under the comprehensive transportation plan. The
Kansas Association of Counties and the League of Kansas Municipalities indicate the bill would
provide a net reduction to local sales tax collections that are used in part to finance local
governments. This bill has the potential to reduce revenues that are pledged to repay STAR bond
projects; however, it is unknown what impact the bill would have on the viability of those projects.
The bill would have no fiscal effect on the operations of the Office of the State Bank
Commissioner; however, it has the potential to adjust certain assessment rates. The agency’s
budget is funded from assessments paid through its licensees and chartered institutions. Its
assessments are based on the budgetary needs of the applicable division. For state banks and trust
companies, the agency assesses a percentage of each entity’s total assets necessary in order to
regulate these institutions. The percentage of total assets assessed changes each fiscal year in order
to ensure the agency’s budgetary needs are met. It is expected that all state banks and trust
companies will have an increase in total assets due to lower privilege taxes. If each bank and trust
company have an increase in total assets, the agency will lower its percentage of total asset
assessment of each state bank and trust company to cover the agency expenses. The Honorable Adam Smith, Chairperson
Page 6—HB 2586
The fiscal effect associated with HB 2586 is reflected in The FY 2025 Governor’s Budget
Report. After The FY 2025 Governor’s Budget Report was issued, the Department of Revenue
updated its property tax valuation model which changed the fiscal note for exempting the first
$100,000 from the state’s 20-mill property tax for public schools than was previously reported.
Sincerely,
Adam C. Proffitt
Director of the Budget
cc: Lynn Robinson, Department of Revenue
Wendi Stark, League of Kansas Municipalities
Jay Hall, Kansas Association of Counties
Brendan Yorkey, Department of Transportation
Barbara Albright, Office of the State Bank Commissioner
Gabrielle Hull, Department of Education