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
April 25, 2023
The Honorable Renee Erickson, Chairperson
Senate Committee on Commerce
300 SW 10th Avenue, Room 546-S
Topeka, Kansas 66612
Dear Senator Erickson:
SUBJECT: Fiscal Note for SB 325 by Senate Committee on Ways and Means
In accordance with KSA 75-3715a, the following fiscal note concerning SB 325 is
respectfully submitted to your committee.
SB 325 would enact the Transformation of Passenger and Freight Vehicle Industry Act
(Act). The Act would establish the Transformation of Passenger and Freight Vehicle Industry
Program to be administered by the Department of Commerce. The purpose of the program would
be to attract businesses engaged in electric motor vehicle and hydrogen-powered vehicle
production industries to build new business facilities and operations, research and development
operations, or new national headquarters in Kansas and to encourage the development of a Kansas-
based supply chain for those enterprises. Under the program, qualified companies would be
eligible for various incentives including investment tax credits up to 10.0 percent of qualified
investments, retention of up to 100.0 percent of withholding taxes, reimbursement of eligible
employee training and education expenses up to $5.0 million per qualifying project, and sales tax
exemptions for construction costs of a business facility until construction of the facility is
completed. To be eligible for these incentives a qualified company would have to:
1. Submit an application describing the proposed project that achieves the purposes
of the Act;
2. Complete the project within five years of the date specified in the agreement with
the Secretary of Commerce;
3. Hire a minimum of 250 new employees within those five years;
4. Retain new employees for a period determined by the Secretary; The Honorable Renee Erickson, Chairperson
Page 2—SB 325
5. If the qualified company proposes to construct a qualified business facility for an
electric motor vehicle and hydrogen-powered vehicle assembly operation project,
make an investment of at least $250.0 million to be completed within five years
from the date specified in the agreement with the Secretary;
6. If requested by the Secretary, prior to making a commitment to invest in a qualified
business facility, submit a certificate of intent to invest in the facility, if the
application is approved by the Secretary;
7. Enter into a binding agreement with the Secretary with terms and conditions
required by the Secretary by December 31, 2026; and
8. Commit to repay any benefits received with a term or condition of the agreement
that has been breached.
The Secretary would also be required to certify to the Secretary of Revenue that the
company meets the criteria for designation as a qualified company and is eligible for those benefits.
The bill would also authorize the Secretary to request the Department of Revenue to audit the
qualified company for compliance with provisions of the Act. On or before January 31 of each
year, the Secretary would also be required to file a report based on information received from the
qualified company and other detailed information listed in the bill. The report would go to the
Governor, Senate Committee on Assessment and Taxation, Senate Committee on Commerce,
House Committee on Taxation, and House Committee on Commerce, Labor and Economic
Development.
The Department of Revenue estimates SB 325 would decrease State General Fund
revenues by at least $10.5 million in FY 2025, $5.5 million in FY 2026 through FY 2029 and
$500,000 in FY 2030 through FY 2034. The Department assumes the 10.0 percent refundable
investment tax credit, for an investment of at least $250.0 million, if the qualified company claimed
the tax credit beginning in tax year 2025, would cost the state $5.0 million a year for five years.
((10.0 percent x $250.0 million) ÷ 5 years = $5.0 million). The bill would also allow the qualified
company to retain up to 100.0 percent of employees’ withholding taxes for ten years if the
company has at least 250 jobs at a wage equal to 120.0 percent of the county’s median wage. The
Department estimates the qualified company could retain about $500,000 a year for ten years
which would reduce State General Fund revenue by $500,000 for 10 years beginning in FY 2025.
This calculation assumes the company’s average wage was $50,000 and an average withholding
rate of 4.0 percent. ($50,000 x 250 employees x 4.0 percent = $500,000). The bill would also
provide for reimbursement of training and education expenses for one year. The Department
assumes the company would claim the maximum reimbursement of $5.0 million in FY 2025. The
Department’s total estimate assumes one qualified company would be approved under the Act.
The Department did not estimate how many businesses the Department of Commerce would
approve under the Act.
The Department of Revenue indicates the bill has the potential to decrease state and local
sales tax revenues by unknown amounts beginning in FY 2024. The bill would allow the sales tax
exemption for constructing, reconstructing, enlarging, or remodeling a qualified business facility
for an electric or hydrogen motor vehicle assembly operation project. The state funds directly The Honorable Renee Erickson, Chairperson
Page 3—SB 325
affected by this bill are the State General Fund and the State Highway Fund. However, the
Department does not have sufficient information on the purchases by the qualified business facility
to make a precise estimate of the amount of reduced state and local sales tax revenues under the
provisions of the bill.
The Department indicates that the bill would require $184,855 from the State General Fund
in FY 2024 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
Department of Commerce indicates SB 325 would not have a fiscal effect on its operations. Any
fiscal effect associated with SB 325 is not reflected in The FY 2024 Governor’s Budget Report.
The League of Kansas Municipalities and the Kansas Association of Counties indicate that
the bill has the potential to decrease local sales tax revenues that are used in part to finance local
governments. If a project is in STAR bond district, 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: Wendi Stark, League of Kansas Municipalities
Jay Hall, Kansas Association of Counties
Brendan Yorkey, Department of Transportation
Lynn Robinson, Department of Revenue
Sherry Rentfro, Department of Commerce