Session of 1998
                   
HOUSE BILL No. 2641
         
By Committee on Taxation
         
1-16
            9             AN ACT relating to the taxation of oil; concerning incentives for the
10             production thereof from marginal wells; amending K.S.A. 79-201t and
11             79-4217 and repealing the existing sections.
12            
13       Be it enacted by the Legislature of the State of Kansas:
14           Section 1. K.S.A. 79-4217 is hereby amended to read as follows:
15       79-4217. (a) There is hereby imposed an excise tax upon the severance
16       and production of coal, oil or gas from the earth or water in this state for
17       sale, transport, storage, profit or commercial use, subject to the following
18       provisions of this section. Such tax shall be borne ratably by all persons
19       within the term ``producer'' as such term is defined in K.S.A. 79-4216,
20       and amendments thereto, in proportion to their respective beneficial in-
21       terest in the coal, oil or gas severed. Such tax shall be applied equally to
22       all portions of the gross value of each barrel of oil severed and subject to
23       such tax and to the gross value of the gas severed and subject to such tax.
24       The rate of such tax shall be 8% of the gross value of all oil or gas severed
25       from the earth or water in this state and subject to the tax imposed under
26       this act. The rate of such tax with respect to coal shall be $1 per ton. For
27       the purposes of the tax imposed hereunder the amount of oil or gas pro-
28       duced shall be measured or determined: (1) In the case of oil, by tank
29       tables compiled to show 100% of the full capacity of tanks without de-
30       duction for overage or losses in handling; allowance for any reasonable
31       and bona fide deduction for basic sediment and water, and for correction
32       of temperature to 60 degrees Fahrenheit will be allowed; and if the
33       amount of oil severed has been measured or determined by tank tables
34       compiled to show less than 100% of the full capacity of tanks, such amount
35       shall be raised to a basis of 100% for the purpose of the tax imposed by
36       this act; and (2) in the case of gas, by meter readings showing 100% of
37       the full volume expressed in cubic feet at a standard base and flowing
38       temperature of 60 degrees Fahrenheit, and at the absolute pressure at
39       which the gas is sold and purchased; correction to be made for pressure
40       according to Boyle's law, and used for specific gravity according to the
41       gravity at which the gas is sold and purchased, or if not so specified,
42       according to the test made by the balance method.
43           (b) The following shall be exempt from the tax imposed under this

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  1       section:
  2           (1) The severance and production of gas which is: (A) Injected into
  3       the earth for the purpose of lifting oil, recycling or repressuring; (B) used
  4       for fuel in connection with the operation and development for, or pro-
  5       duction of, oil or gas in the lease or production unit where severed; (C)
  6       lawfully vented or flared; (D) severed from a well having an average daily
  7       production during a calendar month having a gross value of not more
  8       than $81 per day, which well has not been significantly curtailed by reason
  9       of mechanical failure or other disruption of production; in the event that
10       the production of gas from more than one well is gauged by a common
11       meter, eligibility for exemption hereunder shall be determined by com-
12       puting the gross value of the average daily combined production from all
13       such wells and dividing the same by the number of wells gauged by such
14       meter; (E) inadvertently lost on the lease or production unit by reason of
15       leaks, blowouts or other accidental losses; (F) used or consumed for do-
16       mestic or agricultural purposes on the lease or production unit from which
17       it is severed; or (G) placed in underground storage for recovery at a later
18       date and which was either originally severed outside of the state of Kansas,
19       or as to which the tax levied pursuant to this act has been paid;
20           (2) the severance and production of oil which is: (A) From a lease or
21       production unit whose average daily production is two five barrels or less
22       per producing well, which well or wells have not been significantly cur-
23       tailed by reason of mechanical failure or other disruption of production;
24       (B) from a lease or production unit, the producing well or wells upon
25       which have a completion depth of 2,000 feet or more, and whose average
26       daily production is ;(tri-stars)ree six barrels or less per producing well or, if the
27       price of oil as determined pursuant to subsection (d) is $30 $16 or less,
28       whose average daily production is four seven barrels or less per producing
29       well, or, if the price of oil as determined pursuant to subsection (d) is $24
30       $15 or less, whose average daily production is five eight barrels or less
31       per producing well, or, if the price of oil as determined pursuant to sub-
32       section (d) is $16 $14 or less, whose average daily production is six nine
33       barrels or less per producing well, or, if the price of oil as determined
34       pursuant to subsection (d) is $10 $13 or less, whose average daily pro-
35       duction is seven 10 barrels or less per producing well, which well or wells
36       have not been significantly curtailed by reason of mechanical failure or
37       other disruption of production; (C) from a lease or production unit, whose
38       production results from a tertiary recovery process. ``Tertiary recovery
39       process'' means the process or processes described in subparagraphs (1)
40       through (9) of 10 C.F.R. 212.78(c) as in effect on June 1, 1979; (D) from
41       a lease or production unit, the producing well or wells upon which have
42       a completion depth of less than 2,000 feet and whose average daily pro-
43       duction resulting from a water flood process, is ;(tri-stars)ree six barrels or less

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  1       per producing well, which well or wells have not been significantly cur-
  2       tailed by reason of mechanical failure or other disruption of production;
  3       (E) from a lease or production unit, the producing well or wells upon
  4       which have a completion depth of 2,000 feet or more, and whose average
  5       daily production resulting from a water flood process, is four seven barrels
  6       or less per producing well or, if the price of oil as determined pursuant
  7       to subsection (d) is $30 $16 or less, whose average daily production is five
  8       eight barrels or less per producing well, or, if the price of oil as deter-
  9       mined pursuant to subsection (d) is $24 $15 or less, whose average daily
10       production is six nine barrels or less per producing well, or, if the price
11       of oil as determined pursuant to subsection (d) is $16 $14 or less, whose
12       average daily production is seven 10 barrels or less per producing well,
13       or, if the price of oil as determined pursuant to subsection (d) is $10 or
14       less, whose average daily production is eight barrels or less per producing
15       well, which well or wells have not been significantly curtailed by reason
16       of mechanical failure or other disruption of production; (F) test, frac or
17       swab oil which is sold or exchanged for value; or (G) inadvertently lost
18       on the lease or production unit by reason of leaks or other accidental
19       means;
20           (3) (A) any taxpayer applying for an exemption pursuant to subsec-
21       tion (b)(2)(A) and (B) shall make application annually to the director of
22       taxation therefor. Exemptions granted pursuant to subsection (b)(2)(A)
23       and (B) shall be valid for a period of one year following the date of cer-
24       tification thereof by the director of taxation; (B) any taxpayer applying for
25       an exemption pursuant to subsection (b)(2)(D) or (E) shall make appli-
26       cation annually to the director of taxation therefor. Such application shall
27       be accompanied by proof of the approval of an application for the utili-
28       zation of a water flood process therefor by the corporation commission
29       pursuant to rules and regulations adopted under the authority of K.S.A.
30       55-152 and amendments thereto and proof that the oil produced there-
31       from is kept in a separate tank battery and that separate books and records
32       are maintained therefor. Such exemption shall be valid for a period of
33       one year following the date of certification thereof by the director of
34       taxation; and (C) nothwithstanding the provisions of paragraph (A) or
35       (B), any exemption in effect on the effective date of this act affected by
36       the amendments to subsection (b)(2) by this act shall be redetermined in
37       accordance with such amendments. Any such exemption, and any new
38       exemption established by such amendments and applied for after the ef-
39       fective date of this shall be valid for a period commencing with May 1,
40       1998, and ending on April 30, 1999.
41           (4) the severance and production of gas or oil from any pool from
42       which oil or gas was first produced on or after April 1, 1983, as determined
43       by the state corporation commission and certified to the director of tax-

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  1       ation, and continuing for a period of 24 months from the month in which
  2       oil or gas was first produced from such pool as evidenced by an affidavit
  3       of completion of a well, filed with the state corporation commission and
  4       certified to the director of taxation. Exemptions granted for production
  5       from any well pursuant to this paragraph shall be valid for a period of 24
  6       months following the month in which oil or gas was first produced from
  7       such pool. The term ``pool'' means an underground accumulation of oil
  8       or gas in a single and separate natural reservoir characterized by a single
  9       pressure system so that production from one part of the pool affects the
10       reservoir pressure throughout its extent;
11           (5) the severance and production of oil or gas from a three-year in-
12       active well, as determined by the state corporation commission and cer-
13       tified to the director of taxation, for a period of 10 years after the date of
14       receipt of such certification. As used in this paragraph, ``three-year in-
15       active well'' means any well that has not produced oil or gas in more than
16       one month in the three years prior to the date of application to the state
17       corporation commission for certification as a three-year inactive well. An
18       application for certification as a three-year inactive well shall be in such
19       form and contain such information as required by the state corporation
20       commission, and shall be made prior to July 1, 1996. The commission
21       may revoke a certification if information indicates that a certified well was
22       not a three-year inactive well or if other lease production is credited to
23       the certified well. Upon notice to the operator that the certification for a
24       well has been revoked, the exemption shall not be applied to the pro-
25       duction from that well from the date of revocation; and
26           (6) for the calendar year 1988, and any year thereafter, the severance
27       or production of the first 350,000 tons of coal from any mine as certified
28       by the state geological survey.
29           (c) No exemption shall be granted pursuant to subsection (b)(3) or
30       (4) to any person who does not have a valid operator's license issued by
31       the state corporation commission, and no refund of tax shall be made to
32       any taxpayer attributable to any production in a period when such tax-
33       payer did not hold a valid operator's license issued by the state corporation
34       commission.
35           (d) On April 15, 1988, and on April 15 of each year thereafter, the
36       secretary of revenue shall determine from statistics compiled and pro-
37       vided by the United States department of energy, the average price per
38       barrel paid by the first purchaser of crude oil in this state for the six-
39       month period ending on December 31 of the preceding year. Such price
40       shall be used for the purpose of determining exemptions allowed by sub-
41       section (b)(2)(B) or (E) for the twelve-month period commencing on May
42       1 of such year and ending on April 30 of the next succeeding year.
43           Sec. 2. K.S.A. 79-201t is hereby amended to read as follows: 79-201t.

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  1       The following described property, to the extent herein specified, shall be
  2       and is hereby exempt from all property or ad valorem taxes levied under
  3       the laws of the state of Kansas:
  4           (a) All oil leases, other than royalty interests therein, the average daily
  5       production from which is two three barrels or less per producing well, or
  6       ;(tri-stars)ree five barrels or less per producing well which has a completion depth
  7       of 2,000 feet or more.
  8           (b) The provisions of this section shall apply to all taxable years com-
  9       mencing after December 31, 1991 1997.
10           Sec. 3. K.S.A. 79-201t and 79-4217 are hereby repealed.
11           Sec. 4. This act shall take effect and be in force from and after its
12       publication in the statute book.
13