Raising Revenue: Thinking Outside the Box

Megan Leopold | September 23, 2026

Kansas is on the verge of a state budget crisis if lawmakers don’t make the state more financially secure in the next legislative session. The Legislature will enter the upcoming session facing a FY 2027 budget that spends $689.1 million more than the state is estimated to bring in. 

Over the past several years, Kansas lawmakers have passed tax cuts while simultaneously increasing spending, resulting in a budget that spends more than it is taking in. Our state has been here before, and at that time, lawmakers chose to balance the budget by cutting programs across the state, especially those that support thousands of children and families.  

But it doesn’t have to be this way. While increasing rates on traditional taxes – either sales, income, or property – is the primary way to bring in more revenue to the state, there are other ways to generate more funds.  

As state funds become scarcer, now is the time to think outside the box to ensure programs like Medicaid and SNAP can continue to serve the needs of thousands of Kansas families. These are some ways other states have generated revenue that expand beyond the conventional tax structure.

Excise Taxes  

An excise tax is a tax on a specific good, service, or activity. Though they can be applied to a variety of items, they are most often associated with products and activities that are harmful to health or the environment, such as alcohol, tobacco, gambling, and gasoline. When used in this way, these taxes have the potential to both curb unhealthy behaviors and generate more money to pay for consequences like increased medical expenses and pollution. 

Tobacco Products

Every state taxes traditional cigarettes and most tax other tobacco products like cigars and chewing tobacco. In 2026, state taxes on cigarettes ranged from $0.17 per pack of 20 in Missouri to $5.35 per pack of 20 in New York. Kansas taxes cigarettes at $1.29 per pack of 20, earning a rank of 34 out of 50 states. 

As cigarette use declines across the country, many states are increasing their tax on cigarettes to preserve revenue. Some recent examples include:

• Indiana tripled its cigarette tax from $0.995 to $2.995 per pack of 20, propelling the state from the 39th to the 13th highest tax in the United States. 
• New Jersey increased its cigarette tax from $2.70 to $3.00 per pack of 20. 
• Utah increased its cigarette tax from $1.70 to $2.20 per pack of 20. 

Alternative Tobacco Products 

Over the past decade, states have reevaluated their taxes on tobacco products as new ways to ingest nicotine, such as vapes and oral pouches, hit the market. Because these products don’t contain tobacco, they don’t fit the definition of tobacco products for tax purposes, and there is little consistency across states in how these products are taxed.  

State taxes on vapes vary in both rate and structure. As of January 2026, only 34 states taxed vaping products. Of those states, some tax based on the product volume or number of cartridges while others tax the manufacturer, wholesale, or retail price. Kansas currently taxes nicotine vaping cartridges at a rate of $0.05/mL, giving it a rank of 29 out of 34 states.

As the use of nicotine pouches grows, more states move to pass legislation taxing nicotine pouches. At least 20 states introduced bills in 2025. Kansas does not currently tax these products, but states that do calculate those taxes based on ounces, units, or a percentage of wholesale price.

Other Excise Taxes 

While tobacco, alcohol, and gasoline are the most common excise taxes, states and local governments have found other ways to generate revenue by taxing items like sugary drinks, indoor tanning services, tattoo and massage parlors, and cryptocurrency mining. Currently, in Kansas, these items and services are only subjected to standard state taxes and are not subjected to an additional excise tax. 

Taxes on Technology 

Targeted Advertising Taxes  

Some states have begun taxing digital advertising which, for many years, has been exempt from state and local taxes. Kansas does not currently tax advertisements, but the Institute on Taxation and Economic Policy estimates that Kansas could generate $250 million in revenue by taxing all advertising revenue in 2027.  

This market is growing very quickly due to personalized ad content. An advertising tax provides the dual benefit of raising revenue while also potentially decreasing the social costs associated with using personal data to manipulate consumer behavior. Only a handful of states have enacted legislation to tax advertising to some degree, but several more introduced bills in the most recent legislative session. Measures range from taxing targeted advertising to all advertisements, with the option to exempt traditional types of advertising. 

Data Centers  

In July 2025, Kansas became the 38th state to offer data center incentives. This law grants a sales tax exemption for new facilities that invest at least $250 million in the state and create and maintain at least 20 jobs within two calendar years of opening. Kansas is not alone in offering this type of incentive.  

However, as controversy surrounding data centers grows, some states are rethinking their strategies:  

• Maryland and Georgia both repealed tax exemptions for data centers.  
• Virginia created a data center energy consumption tax of $0.011/kWh of all electricity consumed.
• Texas Governor Greg Abbott issued a directive requiring all data centers to pay for all of their electric infrastructure costs. 
• Arizona enacted a three-year moratorium on the state’s data center sales tax exemption.

Other Technology Taxes  

Advertising and data centers are only a couple of ways states are taking advantage of this growing field. Colorado recently passed a law that repeals tax exemptions for downloaded software. Illinois established a social media platform fee based on the number of users in the state, and New York has introduced a bill to establish an excise tax on the collection of consumer data by commercial collectors.  

Decoupling from Federal Tax Code  

States use the federal tax code as a model for their own system but, as the federal tax system changes, states have the option to “conform” (apply new federal rules like tax cuts or deductions at the state level) or “decouple” (do not apply new federal changes at the state level). Kansas has rolling conformity, meaning that the state automatically aligns the state tax code with federal tax changes as they occur. But Kansas lawmakers sometimes choose to decouple specific provisions in the Kansas tax code. 

New tax provisions in H.R. 1 have caused many states to assess whether federal changes allow them to meet their revenue needs, and some have decided to not automatically match state-level taxes to the federal tax code. Virginia, Idaho, Florida, and Indiana have all decoupled from one or more multiple provisions in H.R. 1 to ensure their states don’t lose much-needed revenue. Kansas is continuing its rolling conformity on H.R. 1 and, as a result, the Tax Foundation estimates that Kansas could lose an estimated $266.9 million of revenue in tax year 2026 due to the costs of temporary personal deductions included in H.R. 1, such as no taxes on tips, overtime, and auto interest. 

Tax Exemption Reform 

Tax exemptions come in many forms and apply to a variety of tax categories. Non-profit businesses benefit from exemptions, as do many high-earning businesses.  These exemptions are often made with the goal of lowering the cost of doing business in the state. 

In 2022, the Attracting Powerful Economic Expansion (APEX) legislation in Kansas established a slate of tax incentives targeted to specific industries and businesses, such as the Panasonic plant in Eudora. Other tax exemptions for businesses include: 

• Agricultural exemptions for certain ingredients, machinery and equipment, seeds or pesticides. 
• A property tax exemption for commercial and industrial machinery and equipment, such as computers, furniture, and machinery, purchased or brought into Kansas after June 30, 2006.
• Exemptions on property finances and certain expenditures for businesses using Industrial Revenue Bonds.  
• Sales tax exemptions for utilities used in a variety of activities, including the production and provision of a taxable service. 

Some existing exemptions have been law for decades and may no longer be necessary. Repealing tax exemptions that are no longer needed or serving their original purpose presents an opportunity for revenue generation. 

Targeted Individual or Business Tax Credits 

Tax credits lower an individual’s and business’ tax liability on their yearly taxes based on spending, donations, or other criteria. If these credits are based on donations to a particular fund or service, they can act as a revenue builder for that service while reducing tax payment for the donor. For example, tax credits for businesses spending money on child care for employees funds increased child care slots in the state while reducing what the business will owe in taxes.  

Kansas offers a variety of tax credits to businesses for engaging in a variety of activities, including creating environments accessible to individuals with disabilities, owning and operating certain alternative-fueled vehicles, and paying above average wages. While many of these are beneficial to Kansas children and families, current tax credits should continue to be examined by the Kansas Legislature to ensure they remain cost-effective and their primary purposes are still working as intended. 

Litigation 

Litigation against social media companies recently made news when Kansas became one of 47 states to reach a settlement with META that will bring at least $134.3 million into the state over the course of ten years. Also of significance is the Master Tobacco Settlement (MSA), of which Kansas was a part in 1999. MSA payments, which continue today, were earmarked by the Kansas Legislature for the Kansas Endowment for Youth, which funds the Children’s Initiatives Fund. 

In general, litigation against companies is done with the goal of recouping funds that a state spent mediating the harmful effects of a specific product. For example, communities face costs associated with increased medical costs and mental health resources for children due to social media or tobacco use. As the dangers of social media and new tobacco products are increasingly understood, the opportunity for litigation is growing and can offer a way to help fund services that were otherwise funded using state money. 

Current Ideas of Unique Revenue Raising in Kansas 

During the 2026 session, two measures attempted to change how Kansas was able to take in revenue, with the aim to lower property or income taxes. For instance, one idea in SCR 1624 would have replaced all property and income taxes with a “sovereign wealth fund,” which would be funded by repealing tax exemptions and placing that additional revenue in the fund. Another idea in SB 488 would have added surcharges on retail purchases, with a flat surcharge on any purchase of $20 or above. Under that bill, the resulting funds would have been earmarked to abolish property taxes.  

While the impact of these policies on low and moderate-income families has not been explored, they demonstrate a different perspective in generating more revenue for the state and begin conversations that help expand the realm of possibility.  

Balancing the Budget in 2027 

The Kansas Legislature has a lot of tough choices to make in the upcoming legislative session if they want to avoid an unbalanced budget while also maintain services that many Kansans rely on. Key to their decision making should be ensuring low- and middle-income Kansas families aren’t bearing the brunt of any tax increases or seeing programs cut that help them make ends meet.

Lawmakers have a unique opportunity to learn from past decisions that led to funding cuts for K-12 public schools and other resources to pay for expensive tax cuts. To avoid repeating our state’s budget crisis that occurred nearly a decade ago, the Kansas Legislature must modernize the tax code to reflect issues impacting Kansans today.