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 3, 2025
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 277 by Senate Committee on Assessment and Taxation
In accordance with KSA 75-3715a, the following fiscal note concerning SB 277 is
respectfully submitted to your committee.
Calculations for Kansas income taxes are based on Kansas adjusted gross income, which
is calculated by adding or subtracting certain types of income from federal adjusted gross income.
SB 277 would allow qualified tips received during the tax year to be subtracted from income for
Kansas income tax purposes beginning in tax year 2026. The qualified tips would be required to
be included on the Internal Revenue Service form issued by the employer to the employee. The
subtraction modification would be limited to $25,000 for an individual and $25,000 for each
spouse that files a married filing jointly return. The Secretary of Revenue would be required to
publish a list of occupations that traditionally and customarily receive tips. The bill includes
definitions of “cash tips” and “qualified tip.”
Estimated State Fiscal Effect
FY 2025 FY 2026 FY 2027
Expenditures
State General Fund -- $145,261 $65,651
Fee Fund(s) -- -- --
Federal Fund -- -- --
Total Expenditures -- $145,261 $65,651
Revenues
State General Fund -- ($4,000,000) ($13,200,000)
Fee Fund(s) -- -- --
Federal Fund -- -- --
Total Revenues -- ($4,000,000) ($13,200,000)
FTE Positions -- 1.00 1.00
The Department of Revenue estimates that HB 277 would reduce State General Fund
revenues by $4.0 million in FY 2026, and by $13.2 million in both FY 2027 and FY 2028. To The Honorable Caryn Tyson, Chairperson
Page 2—SB 277
formulate these estimates, the Department of Revenue reviewed data from the Committee for a
Responsible Federal Budget. It is estimated that $700.0 to $900.0 billion in tips would be given
in the next ten years across the country with Kansas accounting for approximately 0.7 percent of
that amount. Based on Bureau of Labor Statistics data on the average waiter and waitress pay in
Kansas, tips are estimated to be taxed at an effective rate of 2.1 percent. The bill would become
effective in tax year 2026, with the first impact being seen in FY 2026. The estimate for FY 2026
includes 30.0 percent of tax year 2026 tax liability. The estimate for FY 2027 includes 70.0 percent
of tax year 2026 tax liability and 30.0 percent of tax year 2027 tax liability.
Several outside factors may affect the fiscal impact of this bill. There may be an
undetermined larger impact due to taxpayer behavior changes causing more employees to work in
tipped positions or for existing positions to become tipped. Additionally, federal legislation
designed to end taxes on tipped income may render this subtraction modifier redundant and cause
this bill to have no fiscal impact.
The Department of Revenue indicates that the bill would require $145,261 from the State
General Fund in FY 2026 to implement the bill and to modify the automated tax system. The bill
would require the Department to hire 1.00 new FTE position to answer questions from taxpayers
and to assist with the administration of this new subtraction modification. The Department
estimates that ongoing expenses for salaries and wages for the 1.00 FTE position and overhead
expenses would total $65,651 from the State General Fund in FY 2027. 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 Department of Administration indicates that adjusting state income tax collections has
the potential to have a fiscal effect on the amount of revenue collected from its debt setoff program.
This program intercepts individual income tax refunds and homestead tax refunds and applies
those amounts to debts owed to state agencies, municipalities, district courts, and state agencies in
other states. Debts include, but are not limited to child support, taxes, educational expenses, fines,
services provided to the debtor, and court ordered restitution. As the dollar amounts of refunds
are increased, the amount available for possible debt setoffs is also increased. However, the
Department is unable to make an estimate of the amount of additional debt setoffs that would be
intercepted as a result of the bill. Any fiscal effect associated with SB 277 is not reflected in The
FY 2026 Governor’s Budget Report.
Sincerely,
Adam C. Proffitt
Director of the Budget
cc: Lynn Robinson, Department of Revenue
Samir Arif, Department of Administration