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
February 4, 2025
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 2038 by House Committee on Commerce, Labor and
Economic Development
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2038 is
respectfully submitted to your committee.
HB 2038 would enact the Kansas Film and Digital Media Production Development Act.
The purpose of the Act would be to incentivize film, video, or digital media productions in Kansas
and facilitate the development and growth of a film, video, or digital media production industry
and associated businesses supporting the industry in this state. The Act would create the Kansas
Film and Digital Media Industry Development Program at the Department of Commerce with the
assistance of the Kansas Creative Arts Industries Commission.
The Act would provide an income tax credit not to exceed $10.0 million per tax year for
production companies approved by the Department of Commerce, including the requirement that
at least 10.0 percent of the total tax credits approved each year would be for Kansas-based
production companies. Eligible production companies could be eligible for a 30.0 percent income
tax credit for qualified production and certain postproduction expenditures. If the tax credit
amount exceeds the taxpayer’s income tax liability for that taxable year, the amount that exceeds
the Kansas income tax liability could be carried forward for up to ten years. The Secretary of
Commerce could approve additional credits as follows:
1. The amount of the tax credits could increase by up to 5.0 percent if the qualified
production expenditures are for a certified muti-film deal a certified eligible
television series, a certified high-impact production, or contributes to the film-
related infrastructure or workforce development in Kansas. The Honorable Adam Smith, Chairperson
Page 2—HB 2038
2. The amount of the tax credits could increase by up to 5.0 percent if 50.0 percent or
more of the crew or above-the-line personnel are Kansas residents.
3. The amount of the tax credits could increase by up to 5.0 percent if a production
company previously received an income tax credit.
The Act caps the maximum income tax credit amount to 40.0 percent of total qualified
production expenditures or qualified postproduction expenditures made by the production
company for the certified project during that taxable year. The Act includes minimum productions
expenses and other requirements in order to qualify for the income tax credits. The Act would
allow the tax credit to be transferred under certain conditions. The Act also would allow certain
Kansas-based production companies that incur at least $25,000 in qualified expenditures on a
certified production not intended for multimarket distribution but that otherwise would be qualified
expenditures and meets all other qualifications for a tax credit to receive a 25.0 percent tax credit.
If the tax credit amount exceeds the taxpayer’s income tax liability for that taxable year, the amount
that exceeds the Kansas income tax liability could be carried forward for up to ten years.
The bill would also exempt from sales tax purchases of tangible personal property or
services for the purpose of a certified project by a production company that meet the requirements
of the Act. The sales tax exemption would also be extended for any contractor hired for the
construction, reconstruction, enlarging, or remodeling of facilities used for a certified project that
would qualify as a production or postproduction expenditure. 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 contractor would
also be required to pay the retail sales and compensating use tax for materials purchased but not
used or were returned for credit. Failure by the contractor to make the payment would make the
production company liable for payments. The sales tax exemption and income tax credit
provisions of the bill would sunset prior to January 1, 2035.
The Department of Revenue and the Department of Commerce would both have the
authority to write rules and regulations to implement the Act. The Department of Commerce
would be required to submit an annual report to the House Committee on Commerce, Labor and
Economic Development, House Committee on Taxation, Senate Committee on Commerce, and
Senate Committee on Assessment and Taxation. The annual report would include the amounts
and recipients of the tax incentives for the prior fiscal year and to the date of the report, anticipated
tax incentive amounts for the current fiscal year, the production companies that have applied for
and that have been certified for projects, a description of ongoing and completed projects, and the
impact of the projects and the program on the film, video, or digital production industry in Kansas.
The Department of Revenue estimates that HB 2038 would decrease State General Fund
revenues by $10.0 million in FY 2026, and in each future fiscal year through FY 2035. The
Department of Revenue indicates that the Department of Commerce would review and approve
film incentive projects that could be eligible for this new income tax credit program. The
Department of Revenue assumes that the full amount of $10.0 million in allowable credits would
be awarded by the Department of Commerce each fiscal year. The Department of Revenue would The Honorable Adam Smith, Chairperson
Page 3—HB 2038
issue project exemption certificates for the sale tax exemption component of the film incentive
package. However, the Department of Revenue does not have data on the number of film
productions that would qualify for the sales tax exemption to provide an estimate for this
component of the bill.
The Department of Revenue indicates that it would require a total $170,855 from the State
General Fund in FY 2026 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 by unknown amounts. 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 HB 2038 would not have a fiscal effect on agency
operations. Any fiscal effect associated with HB 2038 is not reflected in The FY 2026 Governor’s
Budget Report.
The Kansas Association of Counties and the League of Kansas Municipalities indicate that
the bill has the potential to provide a net reduction to local sales tax collections that are used in
part to finance local governments. However, depending on the overall level of film, video, or
digital media production expenditures, the bill has the potential to increase economic development
and employment opportunities for Kansas communities.
Sincerely,
Adam C. Proffitt
Director of the Budget
cc: Sherry Rentfro, Department of Commerce
Lynn Robinson, Department of Revenue
Brendan Yorkey, Department of Transportation
Wendi Stark, League of Kansas Municipalities
Jay Hall, Kansas Association of Counties
Becky Pottebaum, Board of Regents