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 18, 2024
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 545 by Senate Committee on Assessment and Taxation
In accordance with KSA 75-3715a, the following fiscal note concerning SB 545 is
respectfully submitted to your committee.
SB 545 would provide a sales tax exemption for the purpose of constructing,
reconstructing, enlarging, or remodeling a qualified data center. The sales tax exemption would
apply to the sale and installation of certain data center equipment and eligible data center costs
purchased by the qualified firm for the qualified data center, electricity used by the qualified data
center, and labor services to install, apply, repair, service, alter, or maintain data center equipment.
The sales tax exemption would also be extended to any contractor hired for the constructing,
reconstructing, enlarging, or remodeling of a qualified data center. The bill includes reporting
requirements for contractors and penalties for the use of the sales tax exemption that is determined
to not be part of this project which would be punishable as a misdemeanor. The bill includes
definitions, reporting requirements, and claw back provisions.
A qualified data center would commit to an investment of at least $600.0 million within
the first five calendar years after commencement of construction and maintain at least 20 new jobs
within two calendar years after the data center begins operation. The sales tax exemption would
be valid for 30 years after commencement of construction for a qualified firm making an
investment of at least $600.0 million in a qualified data center, 40 years for an investment of at
least $800.0 million, and indefinitely for an investment of at least $1.0 billion.
The qualified firm would apply for the sales tax exemption to the Department of
Commerce. Certain confidential financial information or trade secrets would not be disclosed to
the public and would be an exception to the Open Records Act; however, this information can be
requested by Legislative Division of Post Audit. This confidentiality provision would expire on
July 1, 2029, unless renewed by the Legislature. As a condition of receiving the sales tax
exemption, the qualified firm would be required to agree to cooperate with any audit undertaken
by the Secretary of Revenue. The Secretary of Commerce would be required to conduct a review
of the qualified firm every five years and certify to the Secretary of Revenue that the qualified firm
would continue to receive the sales tax exemption. The Secretary of Commerce and the Secretary The Honorable Renee Erickson, Chairperson
Page 2—SB 545
of Revenue would have the power to write rules and regulations to implement the Act. The bill
would become effective on July 1, 2024.
The Department of Revenue estimates that SB 545 has the potential to decrease state and
local sales tax revenues by unknown amounts beginning in FY 2024. The state funds directly
affected by this bill are the State General Fund and the State Highway Fund. However, the
Department does not have sufficient information on how many businesses would qualify for this
new sales tax exemption or how long they would qualify for this new sales tax exemption to make
a precise estimate of the amount of reduced state and local sales tax revenues. Assuming that a
proposed data center is original construction, the labor costs associated with the project would
already be exempt under current law. Since the details of any potential projects are unknown, it is
assumed that material costs associated with a project would be similar to those under the Enterprise
Zone exemption at 60.0 percent. Under this scenario, at a rate of 6.5 percent, a $600.0 million
project could result in sales tax foregone of $23.4 million, including $19.4 million from the State
General Fund and $4.0 million from the State Highway Fund. The unknown fiscal effect would
be extended in the future for at least 30 years and up to indefinitely under certain levels of
investment because the qualified data center would continue to receive the sales tax exemption for
purchases of certain data center equipment, eligible data center costs, electricity, and labor services
to install, apply, repair, service, alter, or maintain data center equipment. According to the
Department of Revenue, reissuing sales tax publications and revising forms would cost $1,800
from the State General Fund in FY 2025.
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 that the administrative costs associated reviewing
qualified firms, implementing rules and regulations, and to review qualified firms every five years
would be likely be accomplished within existing staff levels and resources. Any fiscal effect
associated with SB 545 is not reflected in The FY 2025 Governor’s Budget Report.
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.
Sincerely,
Adam C. Proffitt
Director of the Budget
cc: Lynn Robinson, Department of Revenue
Jay Hall, Kansas Association of Counties
Wendi Stark, League of Kansas Municipalities
Sherry Rentfro, Department of Commerce
Brendan Yorkey, Department of Transportation