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 2584 by House Committee on Taxation
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2584 is
respectfully submitted to your committee.
HB 2584 would require sales taxes to be collected from all sales of digital property and
subscription services beginning on July 1, 2024. The retail sales and compensating use tax would
be collected regardless of whether the purchaser has the right to permanently use this property, if
the right to access or retain this property is not permanent, or if the right to use this property is
conditional upon continued payment. The bill includes definitions for digital audio-visual works,
digital audio works, digital books, digital code, and digital property. The bill also reorders and
reconciles the definitions section in the Kansas Retailers Sales Tax Act.
Beginning in FY 2026, once the revenue attributed to sales tax generated from sales of
digital property and subscription services exceeds $36.7 million, the state sales and compensating
use tax would be reduced by 0.1 percent. For each additional $60.0 million of revenue attributed
to sales tax generated from sales of digital property and subscription services since a prior rate
reduction, the state sales and compensating use tax would be reduced by an additional 0.1 percent
until the state sales and compensating use tax rate is lowered to 6.0 percent. The Director of
Legislative Research would certify the revenue amounts to the Secretary of Revenue and the
Director of the Budget by September 1st, and by October 1st, the Secretary of Revenue would
publish the new sales and compensating use tax rates that would go into effect on January 1st.
The Honorable Adam Smith, Chairperson
Page 2—HB 2584


Estimated State Fiscal Effect
FY 2024 FY 2025 FY 2026
Expenditures
State General Fund -- $1,800 --
Fee Fund(s) -- -- --
Federal Fund -- -- --
Total Expenditures -- $1,800 --
Revenues
State General Fund -- $27,800,000 $30,400,000
Fee Fund(s) -- 5,900,000 6,700,000
Federal Fund -- -- --
Total Revenues -- $33,700,000 $37,100,000
FTE Positions -- -- --

The Department of Revenue estimates that HB 2584 would increase state revenues by
$33.7 million in FY 2025. Of that total, the State General Fund is estimated to increase by $27.8
million in FY 2025, while the State Highway Fund is estimated to increase by $5.9 million in FY
2025. This bill also is estimated to increase local sales tax revenues; however, the specific estimate
of higher 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 $30,400,000 $4,500,000 ($21,400,000) ($21,600,000)
State Highway Fund 6,700,000 1,000,000 (4,700,000) (4,700,000)
$37,100,000 $5,500,000 ($26,100,000) ($26,300,000)
To formulate these estimates, the Department of Revenue reviewed industry data on music,
video games, and other online media subscription services, and reviewed data from other states
that tax the sale of digital products. Uinder the provisions of the bill, it is estimated that the state
sales and compensating use tax rate would be reduced by 0.1 percent on January 1, 2027.
According to the Department of Revenue, reissuing sales tax publications and revising forms
would cost $1,800 from the State General Fund in FY 2025.
The Kansas Department of Transportation indicates that the bill would adjust state
revenues to the State Highway Fund as noted above. The Kansas Association of Counties and the
League of Kansas Municipalities indicate the bill would provide a net increase to local sales tax
collections that are used in part to finance local governments. This bill has the potential to make
adjustments to state and local sales tax revenues that are pledged to repay STAR bond projects;
The Honorable Adam Smith, Chairperson
Page 3—HB 2584

however, it is unknown what impact the bill would have on the viability of those projects. Any
fiscal effect associated with HB 2584 is not reflected in The FY 2025 Governor’s Budget Report.

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: 79-3602, 79-3603, 79-3703, 79-3602c