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 Proffitt, Director Laura Kelly, Governor
Division of the Budget
February 20, 2023
The Honorable Caryn Tyson, Chairperson
Senate Committee on Assessment and Taxation
300 SW 10th Avenue, Room 548-S
Topeka, Kansas 66612
Dear Senator Tyson:
SUBJECT: Fiscal Note for SB 248 by Senate Committee on Assessment and Taxation
In accordance with KSA 75-3715a, the following fiscal note concerning SB 248 is
respectfully submitted to your committee.
SB 248 would eliminate the current plan that reduces and eventually sets a 0.0 percent state
sales tax rate specifically on food and food ingredients and eliminates the planned changes to the
distribution of overall state retail sales and compensating use tax revenue. Under current law, the
state sales tax rate specifically on food and food ingredients and the distribution of overall state
retail 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 4.0 % 83.0 % 17.0 %
January 1, 2024 2.0 83.0 17.0
January 1, 2025 0.0 82.0 18.0
The bill would provide a state and local sales tax exemption for healthy food for human
consumption. Healthy food would include fruits and vegetables, including fresh, canned, jarred,
frozen, and dried; meat, poultry, and fish; eggs; milk, including whole, fat-reduced, nonfat,
evaporated, dry, soy, and almond; cheese; yogurt; tofu; infant formula; infant cereal; infant food
fruits, vegetables and meats; juice; whole wheat or whole grain bread; corn or flour tortillas; pasta;
brown rice, bulgur, oatmeal, and whole grain barley; breakfast cereals; beans and nuts; and peanut
butter. The sales tax exemption would not apply to prepared food. The bill would increase the
sales tax rate on all food items that are not considered healthy under this definition, as current law
is a 4.0 percent state sales tax on all groceries, regardless of the definition of healthy foods. The
bill would become effective on January 1, 2024. The Honorable Caryn Tyson, Chairperson
Page 2—SB 248
Estimated State Fiscal Effect
FY 2023
SGF
FY 2023
All Funds
FY 2024
SGF
FY 2024
All Funds
Revenue -- -- ($277,200,000) ($284,400,000)
Expenditure -- -- $1,950 $1,950
FTE Pos. -- -- -- --
The Department of Revenue estimates that SB 248 would decrease state revenues by
$284.4 million in FY 2024. Of that total, the State General Fund is estimated to decrease by $277.2
million in FY 2024, while the State Highway Fund is estimated to decrease by $7.2 million in FY
2024. Given that this bill exempts tax on the identified items, rather than making the tax rate 0.0
percent, it is also 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. The fiscal effect
to state revenues during subsequent years would be as follows:
FY 2025 FY 2026 FY 2027 FY 2028
State General Fund ($123,400,000) $5,700,000 $5,700,000 $5,700,000
State Highway Fund 4,300,000 (5,700,000) (5,700,000) (5,700,000)
($119,100,000) $ -- $ -- $ --
To formulate the estimates of the sales tax exemption for healthy food, the Department of
Revenue assumes that 15.0 percent of all current sales tax collections are collected on these items.
Since the terms in the definition of “healthy food” are not defined, it is unclear how this definition
would be administered. The Department would likely need to establish definitions for the terms
by the rules and regulations process which has the potential to reduce the fiscal effect of the bill
by defining which food items qualify for this sales tax exemption and which do not. Additionally,
since this bill will increase the sales tax rate on certain grocery items relative to current law, there
is likely to be an offset to the estimated fiscal impact; however, the Department of Revenue is
unable to estimate the fiscal impact related to the increased tax rate. The bill has the potential to
place Kansas out of compliance with the Streamlined Sales and Use Tax Agreement. The
Department estimates that more than $80.0 million in revenues annually could be at risk and may
no longer be received if Kansas loses its member status, as other members would no longer be
contractually required to remit retail sales and compensating use taxes to Kansas.
According to the Department of Revenue, reissuing sales tax forms and publications would
cost $1,950 from the State General Fund in FY 2024. The Department’s budget includes funding
for additional customer relations, business support, and to meet the additional accounting and audit
needs related to reducing and eventually setting the state sales tax rate specifically on food and
food ingredients at a 0.0 percent which is included in 2022 HB 2106. Those costs would still be
necessary under the provisions of SB 248.
The Honorable Caryn Tyson, Chairperson
Page 3—SB 248
The Kansas Department of Transportation indicates that the bill would provide a net
reduction of state revenues to the State Highway Fund, as noted above. The fiscal effect associated
with SB 248 is partially reflected in The FY 2024 Governor’s Budget Report. The Governor’s tax
policy recommendation would reduce the state retail sales tax and compensating use tax rate for
all food and food ingredients to 0.0 percent and changes 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, 2023.
The Kansas Association of Counties and the League of Kansas Municipalities indicate that
the bill would provide a net reduction to local sales tax collections that are used in part to finance
local governments. The bill also has the potential to reduce revenues that are pledged to repay
STAR bond projects; however, it is unknown what impact this bill would have on the viability of
those projects.
Sincerely,
Adam Proffitt
Director of the Budget
cc: Lynn Robinson, Department of Revenue
Brendan Yorkey, Department of Transportation
Wendi Stark, League of Kansas Municipalities
Jay Hall, Kansas Association of Counties