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
March 6, 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 2798 by House Committee on Taxation
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2798 is
respectfully submitted to your committee.
HB 2798 would create a procedure to allow corporate income tax rates to decrease in tax
year 2027. In FY 2026, the Director of the Budget would certify to the Secretary of Revenue at
the end of the fiscal year that the amount of actual corporate income tax receipts to the State
General Fund that is in excess of the prior fiscal year’s corporate income tax receipts. The
Secretary of Revenue would be required to compute the corporate income tax rate reductions to
the normal tax on corporation that would decrease receipts by the certified amount rounded down
to the nearest 0.1 percent. The rate change would be required to published by the Secretary of
Revenue by October 1, 2026, and would go into effect in tax year 2027. The rate reduction would
remain in effect unless further reduced. Lower tax receipts would not trigger an automatic rate
increase.
The bill would allow financial institutions to elect to apportion business income by the
taxpayer’s receipts factor for tax year 2024 and 2025. The election would be effective and
irrevocable for the taxable year of the election and would be binding on all members of a unitary
group of corporations. All business income would be apportioned by multiplying the business
income by the receipts factor beginning on December 31, 2025 (the fiscal note assumed that this
would start in tax year 2026). The bill would also create a deduction for qualified companies that
see an increase in tax liability from the single sales factor.
The bill would allow a taxpayer to elect to apportion business income by multiplying the
taxpayer’s business income by the sales factor for tax years 2024 and 2025. The election would The Honorable Adam Smith, Chairperson
Page 2—HB 2798
be effective and irrevocable for the taxable year of the election. All business income would be
apportioned by multiplying the business income by the sales factor beginning on December 31,
2025 (the fiscal note assumed that this would start in tax year 2026). The bill would allow any
taxpayer that previously made an election to make a new election to apportion business income by
multiplying the taxpayer’s business income by the sales factor. The bill would also create a
deduction for qualified companies that see an increase in tax liability from the single sales factor.
The bill would allow trucking companies to use the same apportionment methods as most
other companies instead of using mileage-based apportionment. The bill would also remove
outdated language from previous tax years.
The Department of Revenue estimates that HB 2798 would decrease State General Fund
Revenues by at least $162.4 million in FY 2025, $87.7 million in FY 2026, and $7.9 million in FY
2027.
To formulate these estimates, the Department of Revenue reviewed corporate income tax
returns from tax year 2021. Companies that operate solely in Kansas would see no change from
the apportionment method changes in this bill. For tax years 2024 and 2025, companies would
have the option to choose between using the current thee factor apportionment method or a single
sales factor when they file their return. It is assumed companies will choose the method that results
in a lower tax liability. Based on tax year 2021 data, an optional single sales factor would decrease
corporate tax liability by $103.2 million per tax year. For tax year 2026, the single sales factor
would become mandatory, which is expected to increase tax liability by $10.4 million.
For financial institutions, data on the three-factor formula is not available. The impact on
privilege tax was estimated using the impacts for corporate tax and 2021 collection data. This
would be expected to decrease privilege tax liability by $9.5 million in both tax years 2025 and
2026 and increase tax liability by $1.0 million in tax year 2027.
For interstate motor carriers, three factor data is not available due to current use of mileage-
based apportionment. Companies operating in multiple states were identified based on NAICS
codes and the current apportionment factor used. These companies having the option to use single
sales factor apportionment and basing sales on cost of performance would be expected to decrease
tax collections by at least $12.2 million per tax year.
The deductions provided in the bill would take effect in tax year 2027 with the first impact
being seen in late FY 2027. Limited information is available to determine this impact. Based on
population size and a similar deduction in Massachusetts, this would be expected to decrease the
State General Fund by a total of $223.7 million, which would likely be spread out with $22.4
million claimed per tax year over the next ten tax years that the deduction is in effect.
The corporate tax rate reduction mechanism for tax year 2027 would likely be triggered
based on the fiscal note of this bill that reduces FY 2025 receipts by a greater amount than what is
estimated to occur in FY 2026. Using the estimate from this fiscal note, net corporate income tax
collections would decrease to $1,342.2 million in FY 2025 and then increase to $1,416.9 million The Honorable Adam Smith, Chairperson
Page 3—HB 2798
in FY 2026. This increase, by itself, would result in a corporate rate decrease of 0.4 percent for
tax year 2027. This fiscal note does not take into effect any reduction in corporate income tax
receipts due to the rate reduction mechanism because actual receipts from FY 2025 and FY 2026
are unknown.
The estimate for FY 2025 includes 100.0 percent of tax year 2024 tax liability and 30.0
percent of tax year 2025 tax liability. The estimate for FY 2026 includes 70.0 percent of tax year
2025 tax liability and 30.0 percent of tax year 2026 tax liability.
The Department indicates that the bill would require $69,878 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. Any fiscal effect associated with HB 2798 is not
reflected in The FY 2025 Governor’s Budget Report.
Sincerely,
Adam C. Proffitt
Director of the Budget
cc: Bobbi Mariani, Insurance Department
Barbara Albright, Office of the State Bank Commissioner
Lynn Robinson, Department of Revenue