Staff: Kansas consensus revenue estimates up $165.9M for FY2026; FY2027 dips due to policy changes

Mister Penner, presenting the consensus revenue estimates to the Committee on Taxation on Nov. 21, 2025, said the state revised its FY2026 general fund receipts upward by $165,900,000 — from $10,060,000,000 to $10,230,000,000 — and set an initial FY2027 estimate at $10,130,000,000, a decline of about $94,000,000 or 0.9% year over year.

Penner told the committee the FY2027 decline is primarily the result of policy items. "About $60,000,000 in FY 2026, and about $140,000,000 in FY 2027 was pulled out of the receipts" because of provisions in the federal HR 1 package, including restored expensing and bonus depreciation, he said. He emphasized those are policy-driven effects rather than deterioration of the underlying economy.

Penner outlined other policy drivers. The Apex investment tax credit — though subject to sunset language in statute — continues to affect receipts because taxpayers claim the credit in installments: "the investment tax credit came in years, and each of those years' worth of investment was divided into 5 pieces," Penner said, estimating roughly an additional $50 million impact in FY2026 and another $50 million in FY2027 as remaining credit claims roll through the forecast.

Penner also flagged reinstated statutory transfers as a material factor. He said transfers reinstated for FY2027, including the Build Kansas infrastructure matching fund and higher education deferred maintenance fund, add about $70,000,000 of year‑over‑year transfer growth and that last year’s elimination of a 1.5‑mill state property tax levy (SB 35) was applied prospectively: "You did not lie to them," he said, explaining that tax bills mailed in December reflect tax year 2025 and will still show the mill levy; the change applies to tax year 2026 and later.

On individual income tax, Penner noted unusually strong withholding receipts through the forecast window — withholding was up about 11% year over year in recent months — and said the group could not conclusively explain the spike: if the higher withholding holds, estimates are too low; if withholding reverts, estimates could be high. Committee members asked whether employers’ staggered updates to withholding tables after recent tax law changes could explain the pattern; Penner said timing of payroll software updates likely contributed but that he lacked enough information at the November estimates to be certain.

Penner summarized other revenue-source movements: corporate income tax receipts were projected to decline substantially this year (about $169,000,000 or 12.8%), which he attributed largely to weak C‑corporation payments and compositional shifts following the SALT parity changes; financial institutions and insurance premium taxes showed mixed, modest growth; and sales tax was down 1.6% this year (reflecting the final year of the phased-out food sales tax) while use tax growth remained stronger, in part because of Wayfair and marketplace-facilitator rules.

The consensus group reviewed calculations for SB 269, the statute that provides for future formulaic rate reductions, and concluded no automatic rate reduction is likely to trigger during the forecast period under current estimates. Penner told members the built-in calculator will be monitored and that the scenario most likely to change the projection is the phasing out of Apex credits.

Committee members asked about timing for future estimates relative to the legislative calendar, the State Highway Fund's share of sales/use receipts (Penner said 82% is reflected in these tables and 18% flows directly to the highway fund under distribution formulas), the treatment of star bond districts, and whether AI tools are being used (Penner said his office is not using AI in a robust fashion). He recommended staff provide additional comparative information on property tax burdens across states if the committee wants to pursue that analysis.

The presentation closed with the chair and members arranging follow-up work and a reminder that the sales-tax working group would reconvene the next morning.

The meeting did not record any formal committee votes on fiscal policy during the briefing; the estimates were presented for the committee's information and for future deliberation.