Bill Summary – FastDemocracy

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                                Division of the Budget                              http://budget.kansas.gov
Adam Proffitt, Director                                                                            Laura Kelly, Governor


                                                   January 18, 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 21 by Senate Committee on Assessment and Taxation
                  In accordance with KSA 75-3715a, the following fiscal note concerning SB 21 is
          respectfully submitted to your committee.
                  SB 21 would expand the state’s sales tax exemptions to include a sales tax holiday for sales
          of school supplies, school instructional materials, or school art supplies having a sales price of
          $100 or less per item. The sales tax holiday would occur over a two-day period beginning on the
          first Friday in August at 12:01 a.m. and end at midnight on the following Saturday. The bill
          provides definitions for school supplies, school instructional materials, and school art supplies.
          The first sales tax holiday for school supplies would occur in August 2024.
                  The Department of Revenue estimates that SB 21 would have no impact on state or local
          sales tax receipts until FY 2025. This bill also is estimated to decrease local sales tax revenues
          beginning in FY 2025; 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            ($400,000)         ($400,000)         ($400,000)         ($400,000)
          State Highway Fund              (80,000)           (80,000)           (80,000)           (90,000)
                                        ($480,000)         ($480,000)         ($480,000)         ($490,000)
                  To formulate these estimates, the Department of Revenue reviewed data on state sales tax
          collections and consumer expenditure data. Consumer expenditure data from the U.S. Department
          of Labor show that the average Midwestern household annually spends $1,195 on education. It is
          estimated that 25.0 percent of education purchases would qualify for exempt status during the
The Honorable Caryn Tyson, Chairperson
Page 2—SB 21

proposed sales tax holiday. Data from other states indicate there is an increase in purchases during
a sales tax holiday that ranges from “slight” to a five-fold increase in purchases and corresponding
decreases in sales volume before and after the holiday period as shoppers shift their purchases to
take advantage of the sales tax holiday. For the Kansas sales tax holiday, it is assumed that sales
during the two-day period would be quadruple the normal purchases, with corresponding decreases
in sales volume before and after the sales tax holiday period.
       The Department indicates that the bill would require $1,800 from the State General Fund
in FY 2024 to update sales tax forms and publications. Experiences from other states point to the
need for an extensive guidebook on what purchases are exempt, how to report the exempt sales,
and provide other sales tax holiday instructional material. The Department anticipates there will
be extensive questions and concerns from retailers that will result in allocation of available
resources to administer the holiday vs. performing other duties. Any additional personnel expenses
that may be required to implement the bill are not included in the fiscal note.
        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 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. Any fiscal effect associated with SB 21 is not reflected in The FY 2024 Governor’s
Budget Report.


                                                      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