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 C. Proffitt, Director Laura Kelly, Governor


February 5, 2024


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 2585 by House Committee on Taxation
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2585 is
respectfully submitted to your committee.
Under current law, no sales tax is imposed for the service of installing or applying tangible
personal property in connection with original construction of a building or a facility that becomes
part of real estate. HB 2585 would extend this sales tax exemption to include reconstruction,
restoration, remodeling, renovation, repair, or replacement of a building or facility. The sales tax
exemption would go into effect on July 1, 2024.

Estimated State Fiscal Effect
FY 2024 FY 2025 FY 2026
Expenditures
State General Fund -- $1,200 --
Fee Fund(s) -- -- --
Federal Fund -- -- --
Total Expenditures -- $1,200 --
Revenues
State General Fund -- ($58,300,000) ($64,900,000)
Fee Fund(s) -- (12,400,000) (14,300,000)
Federal Fund -- -- --
Total Revenues -- ($70,700,000) ($79,200,000)
FTE Positions -- -- --
The Honorable Adam Smith, Chairperson
Page 2—HB 2585

The Department of Revenue estimates that HB 2585 would decrease state revenues by
$70.7 million in FY 2025. Of that total, the State General Fund is estimated to decrease by $58.3
million in FY 2025, while the State Highway Fund is estimated to decrease by $12.4 million in FY
2025. This bill also is estimated to decrease local sales tax revenues; 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 2026 FY 2027 FY 2028 FY 2029
State General Fund ($64,900,000) ($66,700,000) ($68,400,000) ($70,200,000)
State Highway Fund (14,300,000) (14,600,000) (15,000,000) (15,400,000)
($79,200,000) ($81,300,000) ($83,400,000) ($85,600,000)
To formulate these estimates, the Department of Revenue reviewed actual deductions
reported on returns filed by taxpayers self-reporting in the construction industry (NAICS Code 23)
for calendar years 2019 through 2022. It is estimated that 27.5 percent of those deductions are
attributable to the exception included in the bill. According to the Department of Revenue,
reissuing sales tax publications and revising forms would cost $1,200 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. Any
fiscal effect associated with HB 2585 is not reflected in The FY 2025 Governor’s Budget Report.
The Kansas Association of Counties and the League of Kansas Municipalities indicate the
bill would provide a net reduction to local sales tax collections that are used in part to finance local
governments. This bill has the potential to reduce revenues that are pledged to repay STAR bond
projects; however, it is unknown what impact the bill would have on the viability of those projects.

Sincerely,

Adam C. Proffitt
Director of the Budget

cc: Wendi Stark, League of Kansas Municipalities
Jay Hall, Kansas Association of Counties
Lynn Robinson, Department of Revenue
Brendan Yorkey, Department of Transportation


Statutes affected:
As introduced: 79-3603, 79-3603d