Division of the Budget
Landon State Office Building Phone: (785) 296-2436
900 SW Jackson Street, Room 504 larry.campbell@ks.gov
Topeka, KS 66612 Division of the Budget http://budget.kansas.gov
Larry L. Campbell, Director Laura Kelly, Governor


February 27, 2019


The Honorable Steven Johnson, Chairperson
House Committee on Taxation
Statehouse, Room 185-N
Topeka, Kansas 66612
Dear Representative Johnson:
SUBJECT: Fiscal Note for HB 2304 by Representatives Whipple, Hodge, and
Ohaebosim
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2304 is
respectfully submitted to your committee.
HB 2304 would expand the state’s sales tax exemptions to include a sales tax holiday for
back-to-school related sales of clothing, clothing accessories, school art supplies, computers,
computer software, and other school supplies. The sales tax holiday would occur on the first
Thursday in August at 12:01 a.m. and end at midnight on the following Sunday. The bill would
exempt all back-to school related sales of:
1. Any article of clothing or clothing accessories having a taxable value of $300 or less;
2. All school supplies and school art supplies not to exceed $100 per item;
3. All computer software with a taxable value of $300 or less; and
4. All personal computers or school computer supplies not to exceed $2,000.
The bill provides definitions for clothing, clothing accessories, school art supplies, personal
computers and school computer supplies, and school supplies. The bill includes language on
procedures and additional definitions that would allow the sales tax holiday to be compliant with
the Streamlined Sales Tax Agreement. The first sales tax holiday for school supplies would occur
in August 2020.
The Department of Revenue estimates that HB 2304 would decrease state revenues by
$5,740,000 in FY 2021. Of that total, the State General Fund is estimated to decrease by
$4,810,000 in FY 2021, while the State Highway Fund is estimated to decrease by $930,000 in FY
2021. This bill also is estimated to decrease local sales tax revenues by approximately $1.5 million
The Honorable Steven Johnson, Chairperson
Page 2—HB 2304

per fiscal year starting in FY 2021. The fiscal effect to revenues during subsequent years would
be as follows:
FY 2022 FY 2023 FY 2024
State General Fund ($4,890,000) ($4,970,000) ($5,050,000)
State Highway Fund (940,000) (960,000) (970,000)
($5,830,000) ($5,930,000) ($6,020,000)
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 $1,608 on clothing and
$1,256 on education. It is estimated that 75.0 percent of the clothing and 25.0 percent of the
education purchases would qualify for exempt status during the proposed sales tax holiday. The
Department estimates that sales tax collections from computer-related expenditures at electronic
stores totaled $7.7 million in FY 2016 based on data from the state sales tax collections report.
These collections are estimated to represent 10.0 percent of the total sales tax from computer
equipment and software. Of that total, it is estimated that 75.0 percent would qualify for exempt
status during the 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. For the
Kansas sales tax holiday, it is assumed that sales during the four-day period would be at least triple
the normal purchases, with corresponding decreases in sales volume before and after the sales tax
holiday period.
The Department of Revenue indicates that it would require a total of $151,850 from the
State General Fund in FY 2020 to implement the sales tax holiday and to modify the automated
tax system. The State General Fund appropriation would be required in FY 2020 to fully
implement the first sales tax holiday in August 2020 (FY 2021). The costs include the
development of a sales tax holiday publication to be made available to retailers and computer
processing changes that will allow retailers to report the exemption for tracking by the Department.
The cost estimate does not include any expenses for administering the sales tax holiday, which
according to other states, can create substantial additional workload. Retailers would contact the
Department on tax issues and on how to track and report the exempted sales. Consumers would
call about the eligibility of specific items, as well as other topics. The required programming for
this bill by itself would be performed by existing staff of the Department of Revenue and outside
contract programmer services. 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 lower State Highway Fund dollars it may be required to make corresponding reductions
to planned expenditures for projects funded under the comprehensive transportation plan, known
as T-WORKS.
The Honorable Steven Johnson, Chairperson
Page 3—HB 2304

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. Any fiscal effect associated with HB 2304 is not reflected in The FY 2020
Governor’s Budget Report.


Sincerely,

Larry L. Campbell
Director of the Budget


cc: Lynn Robinson, Department of Revenue
Ben Cleeves, Transportation
Chardae Caine, League of Municipalities
Jay Hall, Association of Counties


Statutes affected:
As introduced: 79-3606