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

March 31, 2021

The Honorable Adam Smith, Chairperson
House Committee on Taxation
Statehouse, Room 185A-N
Topeka, Kansas 66612
Dear Representative Smith:
SUBJECT: Fiscal Note for HB 2446 by House Committee on Taxation
In accordance with KSA 75-3715a, the following fiscal note concerning HB 2446 is
respectfully submitted to your committee.
HB 2446 would require marketplace facilitators to start collecting Kansas retail sales and
compensating use taxes on sales to Kansas customers on July 1, 2021, if the marketplace facilitator
had cumulative gross receipts from retail sales sourced to this state of $50,000 or more from January
1, 2021 through June 30, 2021. The bill defines a “marketplace facilitator” as a person that has an
agreement with marketplace sellers to facilitate sales through a physical or electronic marketplace. A
marketplace facilitator would not include advertising services. The marketplace facilitator would also
be required to collect all other taxes and fees imposed on a retail sale; however, the collection of 911
fees would be delayed until January 1, 2022. The bill would also set up a procedure that would require
future marketplace facilitators to start collecting and remitting retail sales and compensating use taxes
on sales to Kansas. The Department of Revenue would be allowed to audit sales of marketplace
facilitators. The bill would relieve the liability of a marketplace facilitator to collect and remit the
correct amount of the tax if an error was due to incorrect or insufficient information from the
marketplace seller. Marketplace facilitators would not be responsible to remit any taxes from sales
occurring prior to July 1, 2021; however, if a marketplace facilitator already collected these taxes
voluntarily prior to that date, then they would not be eligible for a refund.
The bill would require sales taxes to be collected from all sales of digital property and
subscription services beginning on July 1, 2021. The bill includes definitions for digital audio-visual
works, digital audio works, digital books, digital code, and digital property. The bill also reorders the
definitions section in the Kansas Retailers Sales Tax Act.
The bill would exclude unemployment compensation benefits or other compensation benefits
from gross income if the benefits were secured with a fraudulent identity and the taxpayer did not
receive the benefits. These benefits would not be subject to Kansas income taxes after the Department
of Revenue determines the benefits were obtained fraudulently by another individual.
The bill would create a new refundable food sales tax credit and repeal the existing non-
refundable food sales tax credit beginning in tax year 2021. The new tax credit amount would be
determined by tax filing status and could be claimed by all taxpayers with income at or below the
following federal adjusted gross income levels:
The Honorable Adam Smith, Chairperson
Page 2—HB 2446

Filing Status Income Level Credit Amount
Single $30,000 $ 60
Head of Household 40,000 180
Married Filing Jointly 40,000 240
Married Filing Separate 30,000 60
The bill would allow the income level and tax credit amounts to be adjusted annually
beginning in tax year 2022, according to the cost-of-living adjustments from the federal Internal
Revenue Service (IRS). The bill would require each county treasurer to include information from the
Department of Revenue about claiming the refundable food sales tax credit in the annual property tax
statement. The Department of Revenue would have the authority to write rules and regulations to
implement the bill.
Calculations for Kansas income taxes are based on the Kansas adjusted gross income, which
is calculated by adding or subtracting certain types of income from the federal adjusted gross income.
The bill would allow the amount of disallowed business interest expenses to be subtracted from
income for Kansas income tax purposes beginning in tax year 2021. Additionally, all deductions
from the carry forward amount of disallowed business interest would be added back for Kansas
income tax purposes beginning in tax year 2021. This would allow state taxpayers to claim the full
amount of business interest expenses on state income tax returns.
The bill would allow 100.0 percent of global intangible low-taxed income (GILTI), before
allowable deductions, to be subtracted from income for Kansas income tax purposes beginning in tax
year 2021. This would exempt this income from state income taxes. The bill would allow the amount
of disallowed meal expenses to be subtracted from income for Kansas income tax purposes beginning
in tax year 2021. This would allow state taxpayers to claim the full amount of meal expenses on state
income tax returns.
The bill would allow the amounts received from the federal Paycheck Protection Program
(PPP) to be subtracted from income for Kansas income tax purposes beginning retroactively in tax
year 2020, if these amounts were included in the taxpayer’s federal adjusted gross income. All
amounts included in the taxpayer’s federal adjusted gross income would be exempt from state income
taxes. The bill would provide that the expenses from PPP loans that are not allowed as a deduction
in determining federal adjusted gross income would be allowed to be subtracted from income for
Kansas income tax purposes beginning retroactively in tax year 2020.
Corporate taxpayers would be allowed to exclude contributions to capital from non-
shareholders in the calculation of state income taxes beginning in tax year 2021. This provision would
exclude contributions by a governmental entity or civic group such as the values of state and local tax
incentives from the calculation of income. Deferred foreign income (federal repatriation) would be
classified as foreign dividends qualifying for the 80.0 percent deduction.
The bill would increase the standard deduction for single individual taxpayers from $3,000 to
$4,250, married filing status from $7,500 to $8,500, and head of household from $5,500 to $6,500
beginning in tax year 2021. The bill would also remove outdated standard deduction language from
previous tax years.
The Honorable Adam Smith, Chairperson
Page 3—HB 2446

Under current law, Kansas corporations, banks, trust companies, and savings and loans can
claim the Kansas expensing deduction for investments in qualifying machinery and equipment that
are placed into service in Kansas for tax year 2014 and each future tax year. The bill would also
allow individual income taxpayers to claim the expensing deduction beginning in tax year 2021. All
taxpayers claiming the Kansas expensing deduction would be required to offset the costs of the
expensing deductions claimed on the federal return with Section 179 of the Internal Revenue Code.

Estimated State Fiscal Effect
FY 2021 FY 2021 FY 2022 FY 2022
SGF All Funds SGF All Funds
Revenue -- -- ($94,300,000) ($77,700,000)
Expenditure -- -- $951,256 $951,256
FTE Pos. -- -- -- 9.00
The Department of Revenue estimates that HB 2446 would decrease state revenues by $77.7
million in FY 2022. Of that total, the State General Fund is estimated to decrease by $94.3 million
in FY 2022, while the State Highway Fund is estimated to increase by $16.6 million in FY 2022.
Given that the Department of Revenue does not have data to make precise estimates of some of the
tax policy changes, the fiscal note of the bill is likely to be higher. 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 estimated fiscal effect by specific tax policy
change would be as follows:
Tax Policy Changes (SGF Only) FY 2022 FY 2023 FY 2024
Marketplace Facilitator $ 43,100,000 $ 49,400,000 $ 51,900,000
Digital Goods 42,700,000 48,900,000 51,400,000
UI Fraud -- -- --
Refundable Food Tax Credit (53,900,000) (55,500,000) (57,200,000)
Disallowed Business Interest (30,600,000) (37,500,000) (38,600,000)
GILTI (24,200,000) (23,500,000) (23,700,000)
Disallowed Meal Expenses -- -- (3,000,000)
PPP Unknown Unknown Unknown
Capital Contributions Negligible Negligible Negligible
Deferred Foreign Income -- -- --
Standard Deduction (73,700,000) (57,300,000) (57,900,000)
Expensing Deduction 2,300,000 2,400,000 2,500,000
Total SGF ($94,300,000) ($73,100,000) ($74,600,000)
Tax Policy Changes (SHF Only) FY 2022 FY 2023 FY 2024
Marketplace Facilitator $ 8,400,000 $ 9,600,000 $ 10,100,000
Digital Goods 8,200,000 9,400,000 9,900,000
Total SHF $ 16,600,000 $ 19,000,000 $ 20,000,000
Total ($77,700,000) ($54,100,000) ($54,600,000)
The Honorable Adam Smith, Chairperson
Page 4—HB 2446

To formulate the estimates for increased sales tax authority from remote sellers, the
Department of Revenue reviewed data from the U.S. Government Accountability Office (GAO) that
released a study on sales taxes in November 2017. The report shows that Kansas has the potential to
receive an additional $113.0 million to $170.0 million each year in increased state and local sales tax
collections with expanded collection authority with out-of-state remote sellers. The numbers quoted
from GAO include both state and local sales tax collections and the amounts that the state already
receives from Streamlined Sales Tax Volunteer Filers. Making these adjustments, the Department of
Revenue estimates that Kansas would likely collect $51.5 million in FY 2022 specifically from
marketplace facilitators, including $43.1 million from the State General Fund and $8.4 million from
the State Highway Fund. The fiscal effect associated with requiring marketplace facilitators to start
collecting retail sales and compensating use taxes is reflected in The FY 2022 Governor’s Budget
Report.
To formulate the estimates for requiring sales taxes for digital property and subscription
services, 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.
The Department indicates that 30 of the 45 states that have a retailer’s sales tax, include the sale of
digital products in their sales tax base. The fiscal effect associated with requiring sales taxes to be
collected from all sales of digital property and subscription services is reflected in The FY 2022
Governor’s Budget Report.
The Kansas Department of Transportation indicates that the bill would increase state revenues
to the State Highway Fund as noted above. The additional revenues would fund additional
expenditures for projects funded under the comprehensive transportation plan. The Kansas
Association of Counties and the League of Kansas Municipalities indicate that the bill would provide
a net increase to local sales tax collections that are used in part to finance local governments.
The Department of Labor and the Department of Revenue both indicate that the provision of
the bill that allows taxpayers to exclude fraudulent unemployment compensation benefits from gross
income would have no fiscal effect. Victims are not held accountable for taxes on unemployment
compensation benefits related to identity theft.
To formulate the estimates from creating a new refundable food sales tax credit and repealing
the existing non-refundable food sales tax credit, the Department reviewed tax return data from tax
year 2019. The Department created a simulated tax table for all taxpayers that would be eligible for
the new refundable food sales tax credit. The Department of Revenue estimates that more than
540,000 tax returns would claim $63.9 million in new refundable food sales tax credits beginning in
FY 2022. The Department estimates that the number of tax returns grows approximately 1.0 percent
each year and the cost of living adjustment would increase by 2.0 percent each year.
The bill would repeal the current non-refundable food sales tax credit after December 31,
2020. The current non-refundable food sales tax credit is restricted to taxpayers that earn $30,615 or
less and are over the age of 55, or disabled or blind, or have at least one dependent under the age of
18 living with them the entire year. Under the provisions of the federal Tax Cut and Jobs Act of 2017,
the IRS no longer collects the number of dependent exemptions claimed on federal income tax returns,
which places the burden to verify and audit dependent exemption data for the current food sales tax
credit on the Department of Revenue. The Department of Revenue indicates that 70,090 taxpayers
The Honorable Adam Smith, Chairperson
Page 5—HB 2446

claimed $9,847,101 in non-refundable food sales tax credits in tax year 2018. Repealing this tax
credit would save approximately $10.0 million in State General Fund refunds in FY 2022.
The net effect of repealing the current non-refundable food sales tax credit and creating the
new refundable food sales tax credit are estimated to reduce State General Fund receipts by $53.9
million in FY 2022 ($10.0 million for repealing the current non-refundable food sales tax credit minus
$63.9 million for the new refundable food sales tax credit).
The Kansas Association of Counties indicates that the new refundable food sales tax credit
portion of the bill would require county treasurers to include additional information with the annual
property tax statement. The Association indicates that the bill would likely require counties to incur
programming and coding costs to include this information with the annual property tax statement.
However, the Association did not provide a precise estimate of the amount of additional programming
and coding costs for counties.
To formulate the estimates related to decoupling from the Tax Cuts and Jobs Act of 2017 or
the CARES Act, the Department of Revenue indicates that it used information from the federal Joint
Commission on Taxation to estimate the impact of all federal tax policy changes on Kansas. The
Department does not have any data to estimate the fiscal effect of allowing individual taxpayers the
ability to deduct GILTI income before any deduction. Meal expenses are currently allowed to be to
be subtracted from income at the federal level for tax year 2021 and tax year 2022, so this provision
would have no fiscal effect on state income tax receipts until tax year 2023 or FY 2024. The
Department is unable to determine the impact of the PPP provisions because it is unclear the amount
of the loans that will not be forgiven at the federal level. The exclusion of certain contributions to
capital would reduce State General Fund receipts by a negligible amount. Deferred foreign income
is already treated as foreign dividends and qualifies for the 80.0 percent deduction, so this provision
would have no fiscal effect.
To formulate these estimates for increasing the standard deduction, the Department of
Revenue simulated this tax policy change based on actual tax return data from tax year 2019. The
estimate for FY 2022 includes 100.0 percent of tax year 2021 tax liability and 30.0 percent of tax year
2022 tax liability. The estimate for FY 2023 includes 70.0 percent of tax year 2022 tax liability and
30.0 percent of tax year 2023 tax liability.
To formulate the estimates on allowing expensing for individual income taxpayers and
requiring the Section 179 of the Internal Revenue Code offset, the Department of Revenue reviewed
data from tax year 2012, which was the last tax year that individual income taxpayers were allowed
to claim the expensing deduction. The Department of Revenue indicates that all State General Fund
estimates for FY 2022 are based on the November 2020 Consensus Revenue Estimate. The
Department estimates that the number of tax returns would increase by 1.0 percent each year.
The Department of Revenue indicates that it would require a total $951,256 from the State
General Fund in FY 2022 to implement the bill and to modify the automated tax system. The bill
would require the Department to hire 9.00 new FTE positions to answer