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


February 16, 2023


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 2221 by House Committee on Taxation
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2221 is
respectfully submitted to your committee.
HB 2221 would set the state sales tax rate on gas, water, electricity, heat, propane gas, LP-
gas, coal, wood, and other fuel sources for the production of heat and lighting for any use at 0.0
percent beginning on July 1, 2024. The bill would allow local governments to continue to charge
a retail sales tax on these utilities and fuel sources; however, the bill gives the option for local
governments to exempt these items from local sales taxes beginning on July 1, 2025.

Estimated State Fiscal Effect
FY 2023 FY 2023 FY 2024 FY 2024
SGF All Funds SGF All Funds
Revenue -- -- -- --
Expenditure -- -- $93,179 $93,179
FTE Pos. -- -- -- --
The Department of Revenue estimates that HB 2221 would not have a fiscal effect on state
revenues until FY 2025. The fiscal effect to state revenues during subsequent years would be as
follows:
FY 2025 FY 2026 FY 2027 FY 2028
State General Fund ($42,300,000) ($46,400,000) ($46,600,000) ($47,000,000)
State Highway Fund (8,700,000) (9,800,000) (10,200,000) (10,300,000)
($51,000,000) ($56,200,000) ($56,800,000) ($57,300,000)
The Honorable Adam Smith, Chairperson
Page 2—HB 2221

To formulate these estimates, the Department of Revenue reviewed sales tax collections
data from FY 2022 on these utilities and fuel sources. The Department indicates that it processes
over 2,000 utility exemption requests each year and with only local taxes collected under the
provisions of the bill, the Department notes that it may be burdensome to the state and utility
providers to process claims that would only apply to local sales taxes.
The Department of Revenue indicates that it would require a total $93,179 from the State
General Fund in FY 2025 to implement the bill and to modify the automated tax system. The
Department indicates it would be required to revise existing sales tax forms and publications and
would create two new publications as a result of this bill. 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 fewer State Highway Fund dollars it may be required to make corresponding reductions
to planned expenditures for projects funded under the comprehensive transportation plan. Any
fiscal effect associated with HB 2221 is not reflected in The FY 2024 Governor’s Budget Report.
The League of Kansas Municipalities and the Kansas Association of Counties indicate the
bill would give local governments the option to exempt utilities and fuel sources from local sales
taxes. If a local government chose to exempt these sales from its local sales tax base, then the bill
would provide a net reduction to local sales tax collections that are used in part to finance local
governments.


Sincerely,

Adam Proffitt
Director of the Budget

cc: Lynn Robinson, Department of Revenue
Craig Neuenswander, Department of Education
Wendi Stark, League of Kansas Municipalities
Jay Hall, Kansas Association of Counties


Statutes affected:
As introduced: 12-189a, 79-3603