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


March 9, 2020
REVISED

The Honorable Steven Johnson, Chairperson
House Committee on Taxation
Statehouse, Room 185A-N
Topeka, Kansas 66612
Dear Representative Johnson:
SUBJECT: Revised Fiscal Note for HB 2491 by Representative Highberger, et al.
In accordance with KSA 75-3715a, the following revised fiscal note concerning HB 2491
is respectfully submitted to your committee.
HB 2491 would provide sales tax exemptions for food and food ingredients and feminine
hygiene products on July 1, 2020. The bill would allow local governments to continue to charge
a sales tax on food and food ingredients. Food and food ingredients would be defined as
substances, whether in liquid, concentrated, solid, frozen, dried, or dehydrated form, that are sold
for ingestion or chewing by humans and are consumed for their taste or nutritional value. Food
and food ingredients would not include alcoholic beverages, dietary supplements, tobacco, or
certain prepared food. Food and food ingredients would specifically include bottled water, candy,
food sold through vending machines, and soft drinks. The bill would provide specific definitions
for bottled water, candy, food sold through vending machines, prepared food, soft drinks, dietary
supplements, and feminine hygiene products. The bill would not adjust the distribution of state
retail sales and compensating use tax revenue, which would remain the same as current law: 83.846
percent to the State General Fund and 16.154 percent to the State Highway Fund.
Under current law, individual income tax rates are set at 3.1 percent for income under
$15,000 ($30,000 for married filing jointly), 5.25 percent for income between $15,000 and $30,000
(between $30,000 and $60,000 for married filing jointly), and at 5.7 percent for income $30,000
and over ($60,000 and over for married filing jointly) in tax year 2018 and in future tax years. The
bill would create a five-bracket income tax system beginning in tax year 2020. The individual
income tax rates would be set at 3.1 percent for income under $15,000 ($30,000 for married filing
jointly), 5.25 percent for income between $15,000 and $30,000 (between $30,000 and $60,000 for
married filing jointly), 5.7 percent for income between $30,000 and $250,000 (between $60,000
and $500,000 for married filing jointly), 7.7 percent for income between $250,000 and $500,000
(between $500,000 and $1.0 million for married filing jointly), and at 8.7 percent for income
$500,000 and over ($1.0 million and over for married filing jointly).
The Honorable Steven Johnson, Chairperson
Page 2—HB 2491

Estimated State Fiscal Effect
FY 2020 FY 2020 FY 2021 FY 2021
SGF All Funds SGF All Funds
Revenue -- -- $44,900,000 ($19,700,00)
Expenditure -- -- $833,567 $833,567
FTE Pos. -- -- -- 6.00
The Department of Revenue estimates that HB 2491 would decrease state revenues by
$19.7 million in FY 2021. Of that total, the State General Fund is estimated to increase by $44.9
million in FY 2021, while the State Highway Fund is estimated to decrease by $64.6 million in FY
2021. This bill also is estimated to decrease local sales tax revenues from the new sales tax
exemption on feminine hygiene products; however, the specific estimate of lower local sales tax
revenues was not calculated by the Department of Revenue. Local sales tax revenues from food
and food ingredients are not estimated to be affected under the provisions of this bill. The fiscal
effect to state revenues during subsequent years would be as follows:
FY 2022 FY 2023
State General Fund ($75,700,000) ($78,300,000)
State Highway Fund (71,400,000) (72,500,000)
($147,100,000) ($150,800,000)
To formulate the estimates of the sales tax exemption for food and food ingredients, the
Department assumes that 15.0 percent of all current sales tax collections are collected on food and
food ingredients. The Department estimates that exempting food and food ingredients would result
in a reduction in state sales tax collections of $398.5 million in FY 2021, $441.2 million in FY
2022, and $447.8 million in FY 2023. Retailers will be required to collect sales or compensating
use tax at two different rates depending on the products sold. The bill would also require food
retailers to file two returns each month, one for food sales only subject to the local tax (similar to
the current utility return) and the current return for items subject to the state and local sales tax.
The Department indicates these additional requirements may be burdensome to some retailers.
To formulate the estimates of the sales tax exemption for feminine hygiene products, the
Department review data from Kansas Department of Health and Environment (KDHE). According
to KDHE, there were approximately 729,000 women in Kansas between the ages of 15 and 54 in
2018. Based on market data and exemption data from other states, this exemption is estimated to
result in a reduction in state sales tax collections of $1.3 million in FY 2021, $1.5 million in FY
2022, and $1.5 million in FY 2023.
To formulate the estimates of the proposed income tax rate changes, the Department of
Revenue reviewed data from tax year 2018 and created a simulated tax table. The Department
estimates that individual income tax collections would increase by $380.1 million in FY 2021,
$295.6 million in FY 2022, and $298.5 million in FY 2023. The individual income tax estimate
for FY 2021 includes 100.0 percent of tax year 2020 tax liability and 30.0 percent of tax year 2021
tax liability. The individual income tax estimate for FY 2022 includes 70.0 percent of tax year
2021 tax liability and 30.0 percent of tax year 2022 tax liability.
The Honorable Steven Johnson, Chairperson
Page 3—HB 2491

The Department indicates that the bill would require $833,567 from the State General Fund
in FY 2021 to implement the bill and to modify the automated tax system. The bill would require
the Department to hire 6.00 new FTE positions to review, process, and audit sales tax returns. 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. Due to the required programming necessary to
implement the bill, the Department may not be able to implement the food sales tax exemption
portion of the bill on July 1, 2020. Since the original fiscal note was issued, the Department of
Revenue increased its estimate on administrative costs needed to implement the bill.
The Department of Administration indicates that adjusting state income tax collections has
the potential to have a fiscal effect on the amount of revenue collected from its debt setoff program.
This program intercepts individual income tax refunds and homestead tax refunds and applies
those amounts to debts owed to state agencies, municipalities, district courts, and state agencies in
other states. Debts include, but are not limited to child support, taxes, educational expenses, fines,
services provided to the debtor, and court ordered restitution. As the dollar amounts of refunds
are decreased, the amount available for possible debt setoffs is also decreased. However, the
Department is unable to make a precise estimate of the amount of debts setoffs that will not be
intercepted as a result of the bill.
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 League of Kansas Municipalities and Kansas Association of Counties indicates that
the state sales tax exemption on food and food ingredients while allowing local governments to
continue to charge a sales tax on food and food ingredients has the potential to alter shopping
habits, especially near the border, and could increase local sales tax revenues that that are used in
part to finance local governments. The sales tax exemption for feminine hygiene products would
provide a reduction to local sales tax collections; however, the reduction is estimated to be
negligible. Any fiscal effect associated with HB 2491 is not reflected in The FY 2021 Governor’s
Budget Report.

Sincerely,

Larry L. Campbell
Director of the Budget
cc: Ben Cleeves, Transportation
Jay Hall, Association of Counties
Lynn Robinson, Department of Revenue
Jeff Scannell, Department of Administration
Trey Cocking, League of Municipalities


Statutes affected:
As introduced: 12-189a, 79-32, 79-3602, 79-3606