[As Amended by House Committee of the Whole]
         
As Amended by House Committee
         
Session of 1999
         
HOUSE BILL No. 2543
         
By Committee on Taxation
         
3-4
         
11             AN  ACT relating to income taxation; allowing a credit therefrom for
12             property tax paid upon the working interest of certain oil leases. en-
13             acting the Kansas commerce and industry tax reform and re-
14             duction act of 1999; amending K.S.A. 1998 Supp. 79-201w, 79-
15             32,206, 79-3602, 79-3606 and 79-4217 and repealing the
16             existing sections.
17      
18       Be it enacted by the Legislature of the State of Kansas:
19             Section  1. For all taxable years commencing after December 31,
20       1997, there shall be allowed as a credit against the tax liability of a taxpayer
21       imposed under the Kansas income tax act, an amount equal to the total
22       amount of property tax levied for property tax year 1998, and all such
23       years thereafter, actually and timely paid by the taxpayer which is attrib-
24       utable to the working interest of an oil lease the average daily production
25       per well from which is 15 barrels or less, or a natural gas lease the
26       average daily production per well from which is 90 mcf or less. No
27       credit shall be allowed for property tax paid upon machinery and equip-
28       ment attributable to the working interest for which a credit is claimed
29       pursuant to K.S.A. 1998 Supp. 79-32,206, and amendments thereto. If
30       the amount of such tax credit exceeds the taxpayer's income tax liability
31       for the taxable year, the amount thereof which exceeds such tax liability
32       shall be refunded to the taxpayer. If the taxpayer is a corporation having
33       an election in effect under subchapter S of the federal internal revenue
34       code, a partnership or a limited liability company, the credit provided by
35       this section shall be claimed by the shareholders of such corporation, the
36       partners of such partnership or the members of such limited liability
37       company in the same manner as such shareholders, partners and mem-
38       bers account for their proportionate shares of the income or loss of the
39       corporation, partnership or limited liability company. As an alternative
40       method of claiming the credit, operators of oil and gas wells may
41       apply for a refund of the property taxes paid on the lease directly
42       to the Kansas department of revenue on forms prescribed by the

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  1       department.
  2        Sec.  2. K.S.A. 1998 Supp. 79-201w is hereby amended to read
  3       as follows: 79-201w. The following described property, to the ex-
  4       tent specified by this section, shall be exempt from all property or
  5       ad valorem taxes levied under the laws of the state of Kansas:
  6             (a) Any item of machinery, equipment, materials and supplies
  7       which, except for the operation of the provisions of this section,
  8       would be required to be listed for the purpose of taxation pursuant
  9       to K.S.A. 79-306, and amendments thereto, and which is used or
10       to be used in the conduct of the owner's business, or in the conduct
11       of activities by an entity not subject to Kansas income taxation
12       pursuant to K.S.A. 79-32,113, and amendments thereto, whose
13       original retail cost when new is $250 $500 or less.
14             (b) The provisions of this section shall apply to all taxable years
15       commencing after December 31, 1995 1999.
16             Sec.  3. K.S.A. 1998 Supp. 79-32,206 is hereby amended to
17       read as follows: 79-32,206. For all taxable years commencing after
18       December 31, 1997, there shall be allowed as a credit against the
19       tax liability of a taxpayer imposed under the Kansas income tax act,
20       the premiums tax upon insurance companies imposed pursuant to
21       K.S.A. 40-252, and amendments thereto, and the privilege tax as
22       measured by net income of financial institutions imposed pursuant
23       to article 11 of chapter 79 of the Kansas Statutes Annotated, an
24       amount equal to 15% of the property tax levied for property tax
25       year 1998, and 20% of the property tax levied for property tax year 1999,
26       and all such years thereafter, actually and timely paid during an
27       income, premiums or privilege taxable year upon commercial and
28       industrial machinery and equipment classified for property taxa-
29       tion purposes pursuant to section 1 of article 11 of the Kansas
30       constitution in subclass (5) or (6) of class 2 and machinery and
31       equipment classified for such purposes in subclass (2) of class 2.
32       For all taxable years commencing after December 31, 1997, and if the
33       amount of such tax credit exceeds the taxpayer's income tax, pre-
34       miums tax or privilege tax liability for the taxable year, the amount
35       thereof which exceeds such tax liability shall be refunded to the
36       taxpayer. If the taxpayer is a corporation having an election in
37       effect under subchapter S of the federal internal revenue code, a
38       partnership or a limited liability company, the credit provided by
39       this section shall be claimed by the shareholders of such corpora-
40       tion, the partners of such partnership or the members of such lim-
41       ited liability company in the same manner as such shareholders,
42       partners or members account for their proportionate shares of the
43       income or loss of the corporation, partnership or limited liability

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  1       company.
  2             Sec.  4. On and after July 1, 1999, K.S.A. 1998 Supp. 79-3602
  3       is hereby amended to read as follows: 79-3602. (a) "Persons"
  4       means any individual, firm, copartnership, joint adventure, asso-
  5       ciation, corporation, estate or trust, receiver or trustee, or any
  6       group or combination acting as a unit, and the plural as well as the
  7       singular number; and shall specifically mean any city or other po-
  8       litical subdivision of the state of Kansas engaging in a business or
  9       providing a service specifically taxable under the provisions of this
10       act.
11             (b) "Director" means the state director of taxation.
12             (c) "Sale" or "sales" means the exchange of tangible personal
13       property, as well as the sale thereof for money, and every trans-
14       action, conditional or otherwise, for a consideration, constituting
15       a sale, including the sale or furnishing of electrical energy, gas,
16       water, services or entertainment taxable under the terms of this
17       act and including, except as provided in the following provision,
18       the sale of the use of tangible personal property by way of a lease,
19       license to use or the rental thereof regardless of the method by
20       which the title, possession or right to use the tangible personal
21       property is transferred. The term "sale" or "sales" shall not mean
22       the sale of the use of any tangible personal property used as a
23       dwelling by way of a lease or rental thereof for a term of more
24       than 28 consecutive days.
25             (d) "Retailer" means a person regularly engaged in the busi-
26       ness of selling tangible personal property at retail or furnishing
27       electrical energy, gas, water, services or entertainment, and selling
28       only to the user or consumer and not for resale.
29             (e) "Retail sale" or "sale at retail" means all sales made within
30       the state of tangible personal property or electrical energy, gas,
31       water, services or entertainment for use or consumption and not
32       for resale.
33             (f) "Tangible personal property" means corporeal personal
34       property. Such term shall include;: (1) Any computer software pro-
35       gram which is not a custom computer software program, as de-
36       scribed by subsection (s) of K.S.A. 79-3603, and amendments
37       thereto; and (2) and any prepaid telephone calling card or prepaid
38       authorization number, or recharge of such card or number, as de-
39       scribed by subsection (b) of K.S.A. 79-3603, and amendments
40       thereto.
41             (g) "Selling price" means the total cost to the consumer exclu-
42       sive of discounts allowed and credited, but including freight and
43       transportation charges from retailer to consumer.

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  1             (h) "Gross receipts" means the total selling price or the
  2       amount received as defined in this act, in money, credits, property
  3       or other consideration valued in money from sales at retail within
  4       this state; and embraced within the provisions of this act. The tax-
  5       payer, may take credit in the report of gross receipts for: (1) An
  6       amount equal to the selling price of property returned by the pur-
  7       chaser when the full sale price thereof, including the tax collected,
  8       is refunded in cash or by credit; and (2) an amount equal to the
  9       allowance given for the trade-in of property.
10             (i) "Taxpayer" means any person obligated to account to the
11       director for taxes collected under the terms of this act.
12             (j) "Isolated or occasional sale" means the nonrecurring sale
13       of tangible personal property, or services taxable hereunder by a
14       person not engaged at the time of such sale in the business of
15       selling such property or services. Any religious organization which
16       makes a nonrecurring sale of tangible personal property acquired
17       for the purpose of resale shall be deemed to be not engaged at the
18       time of such sale in the business of selling such property. Such term
19       shall include: (1) Any sale by a bank, savings and loan institution,
20       credit union or any finance company licensed under the provisions
21       of the Kansas uniform consumer credit code of tangible personal
22       property which has been repossessed by any such entity; and (2)
23       any sale of tangible personal property made by an auctioneer or
24       agent on behalf of not more than two principals or households if
25       such sale is nonrecurring and any such principal or household is
26       not engaged at the time of such sale in the business of selling tan-
27       gible personal property.
28             (k) "Service" means those services described in and taxed un-
29       der the provisions of K.S.A. 79-3603 and amendments thereto.
30             (l) "Ingredient or component part" means tangible personal
31       property which is necessary or essential to, and which is actually
32       used in and becomes an integral and material part of tangible per-
33       sonal property or services produced, manufactured or com-
34       pounded for sale by the producer, manufacturer or compounder
35       in its regular course of business. The following items of tangible
36       personal property are hereby declared to be ingredients or com-
37       ponent parts, but the listing of such property shall not be deemed
38       to be exclusive nor shall such listing be construed to be a restriction
39       upon, or an indication of, the type or types of property to be in-
40       cluded within the definition of "ingredient or component part" as
41       herein set forth:
42             (1) Containers, labels and shipping cases used in the distribu-
43       tion of property produced, manufactured or compounded for sale

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  1       which are not to be returned to the producer, manufacturer or
  2       compounder for reuse.
  3             (2) Containers, labels, shipping cases, paper bags, drinking
  4       straws, paper plates, paper cups, twine and wrapping paper used
  5       in the distribution and sale of property taxable under the provi-
  6       sions of this act by wholesalers and retailers and which is not to be
  7       returned to such wholesaler or retailer for reuse.
  8             (3) Seeds and seedlings for the production of plants and plant
  9       products produced for resale.
10             (4) Paper and ink used in the publication of newspapers.
11             (5) Fertilizer used in the production of plants and plant prod-
12       ucts produced for resale.
13             (6) Feed for animals, fowl and aquatic plants and animals, the
14       primary purpose of which is use in agriculture or aquaculture, as
15       defined in K.S.A. 47-1901, and amendments thereto, the produc-
16       tion of food for human consumption, the production of animal,
17       dairy, poultry or aquatic plant and animal products, fiber, fur, or
18       the production of offspring for use for any such purpose or
19       purposes.
20             (m) "Property which is consumed" means tangible personal
21       property which is essential or necessary to and which is used in the
22       actual process of and immediately consumed, depleted or dissipated
23       within one year in (1) the production, manufacture, processing, min-
24       ing, drilling, refining or compounding of tangible personal prop-
25       erty, (2) the providing of services or, (3) the irrigation of crops, for
26       sale in the regular course of business, or (4) the storage or processing
27       of grain by a public grain warehouse or other grain storage facility, and
28       which is not reusable for such purpose. The following items of tan-
29       gible personal property are hereby declared to be "consumed" but the
30       listing of such property shall not be deemed to be exclusive nor shall such
31       listing be construed to be a restriction upon or an indication of, the type
32       or types of property to be included within the definition of "property
33       which is consumed" as herein set forth is a listing of tangible personal
34       property, included by way of illustration but not of limitation, which
35       qualifies as property which is consumed:
36             (A) Insecticides, herbicides, germicides, pesticides, fungicides,
37       fumigants, antibiotics, biologicals, pharmaceuticals, vitamins and
38       chemicals for use in commercial or agricultural production, proc-
39       essing or storage of fruit, vegetables, feeds, seeds, grains, animals
40       or animal products whether fed, injected, applied, combined with
41       or otherwise used; and
42             (B) electricity, gas and water; and
43             (C) petroleum products, lubricants, chemicals, solvents, reagents and

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  1       catalysts.
  2             (n) "Political subdivision" means any municipality, agency or
  3       subdivision of the state which is, or shall hereafter be, authorized
  4       to levy taxes upon tangible property within the state or which cer-
  5       tifies a levy to a municipality, agency or subdivision of the state
  6       which is, or shall hereafter be, authorized to levy taxes upon tan-
  7       gible property within the state. Such term also shall include any
  8       public building commission, housing, airport, port, metropolitan
  9       transit or similar authority established pursuant to law.
10             (o) "Municipal corporation" means any city incorporated un-
11       der the laws of Kansas.
12             (p) "Quasi-municipal corporation" means any county, town-
13       ship, school district, drainage district or any other governmental
14       subdivision in the state of Kansas having authority to receive or
15       hold moneys or funds.
16             (q) "Nonprofit blood bank" means any nonprofit place, organ-
17       ization, institution or establishment that is operated wholly or in
18       part for the purpose of obtaining, storing, processing, preparing
19       for transfusing, furnishing, donating or distributing human blood
20       or parts or fractions of single blood units or products derived from
21       single blood units, whether or not any remuneration is paid there-
22       for, or whether such procedures are done for direct therapeutic
23       use or for storage for future use of such products.
24             (r) "Contractor, subcontractor or repairman" means a person
25       who agrees to furnish and install tangible personal property or
26       install tangible personal property at a specified price. A person
27       who maintains an inventory of tangible personal property which
28       enables such person to furnish and install the tangible personal
29       property or install the tangible personal property shall not be
30       deemed a contractor, subcontractor or repairman but shall be
31       deemed a retailer.
32             (s) "Educational institution" means any nonprofit school, col-
33       lege and university that offers education at a level above the
34       twelfth grade, and conducts regular classes and courses of study
35       required for accreditation by, or membership in, the North Cen-
36       tral Association of Colleges and Schools, the state board of edu-
37       cation, or that otherwise qualify as an "educational institution," as
38       defined by K.S.A. 74-50,103, and amendments thereto. Such
39       phrase shall include: (1) A group of educational institutions that
40       operates exclusively for an educational purpose; (2) nonprofit en-
41       dowment associations and foundations organized and operated ex-
42       clusively to receive, hold, invest and administer moneys and prop-
43       erty as a permanent fund for the support and sole benefit of an

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  1       educational institution; (3) nonprofit trusts, foundations and other
  2       entities organized and operated principally to hold and own re-
  3       ceipts from intercollegiate sporting events and to disburse such
  4       receipts, as well as grants and gifts, in the interest of collegiate and
  5       intercollegiate athletic programs for the support and sole benefit
  6       of an educational institution; and (4) nonprofit trusts, foundations
  7       and other entities organized and operated for the primary purpose
  8       of encouraging, fostering and conducting scholarly investigations
  9       and industrial and other types of research for the support and sole
10       benefit of an educational institution.
11             Sec.  5. On and after July 1, 1999, K.S.A. 1998 Supp. 79-3606
12       is hereby amended to read as follows: 79-3606. The following shall
13       be exempt from the tax imposed by this act:
14             (a) All sales of motor-vehicle fuel or other articles upon which
15       a sales or excise tax has been paid, not subject to refund, under
16       the laws of this state except cigarettes as defined by K.S.A. 79-3301
17       and amendments thereto, cereal malt beverages and malt products
18       as defined by K.S.A. 79-3817 and amendments thereto, including
19       wort, liquid malt, malt syrup and malt extract, which is not subject
20       to taxation under the provisions of K.S.A. 79-41a02 and amend-
21       ments thereto, motor vehicles taxed pursuant to K.S.A. 79-5117,
22       and amendments thereto, tires taxed pursuant to K.S.A. 1998
23       Supp. 65-3424d, and amendments thereto, and drycleaning and
24       laundry services taxed pursuant to K.S.A. 1998 Supp. 65-34,150,
25       and amendments thereto;
26             (b) all sales of tangible personal property or service, including
27       the renting and leasing of tangible personal property, purchased
28       directly by the state of Kansas, a political subdivision thereof, other
29       than a school or educational institution, or purchased by a public
30       or private nonprofit hospital or public hospital authority or non-
31       profit blood, tissue or organ bank and used exclusively for state,
32       political subdivision, hospital or public hospital authority or non-
33       profit blood, tissue or organ bank purposes, except when: (1) Such
34       state, hospital or public hospital authority is engaged or proposes
35       to engage in any business specifically taxable under the provisions
36       of this act and such items of tangible personal property or service
37       are used or proposed to be used in such business, or (2) such po-
38       litical subdivision is engaged or proposes to engage in the business
39       of furnishing gas, water, electricity or heat to others and such items
40       of personal property or service are used or proposed to be used in
41       such business;
42             (c) all sales of tangible personal property or services, including
43       the renting and leasing of tangible personal property, purchased

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  1       directly by a public or private elementary or secondary school or
  2       public or private nonprofit educational institution and used pri-
  3       marily by such school or institution for nonsectarian programs and
  4       activities provided or sponsored by such school or institution or in
  5       the erection, repair or enlargement of buildings to be used for
  6       such purposes. The exemption herein provided shall not apply to
  7       erection, construction, repair, enlargement or equipment of build-
  8       ings used primarily for human habitation;
  9             (d) all sales of tangible personal property or services purchased
10       by a contractor for the purpose of constructing, equipping, recon-
11       structing, maintaining, repairing, enlarging, furnishing or remod-
12       eling facilities for any public or private nonprofit hospital or public
13       hospital authority, public or private elementary or secondary
14       school or a public or private nonprofit educational institution,
15       which would be exempt from taxation under the provisions of this
16       act if purchased directly by such hospital or public hospital au-
17       thority, school or educational institution; and all sales of tangible
18       personal property or services purchased by a contractor for the
19       purpose of constructing, equipping, reconstructing, maintaining,
20       repairing, enlarging, furnishing or remodeling facilities for any
21       political subdivision of the state, the total cost of which is paid from
22       funds of such political subdivision and which would be exempt
23       from taxation under the provisions of this act if purchased directly
24       by such political subdivision. Nothing in this subsection or in the
25       provisions of K.S.A. 12-3418 and amendments thereto, shall be
26       deemed to exempt the purchase of any construction machinery,
27       equipment or tools used in the constructing, equipping, recon-
28       structing, maintaining, repairing, enlarging, furnishing or remod-
29       eling facilities for any political subdivision of the state. As used in
30       this subsection, K.S.A. 12-3418 and 79-3640, and amendments
31       thereto, "funds of a political subdivision" shall mean general tax
32       revenues, the proceeds of any bonds and gifts or grants-in-aid.
33       Gifts shall not mean funds used for the purpose of constructing,
34       equipping, reconstructing, repairing, enlarging, furnishing or re-
35       modeling facilities which are to be leased to the donor. When any
36       political subdivision of the state, public or private nonprofit hos-
37       pital or public hospital authority, public or private elementary or
38       secondary school or public or private nonprofit educational insti-
39       tution shall contract for the purpose of constructing, equipping,
40       reconstructing, maintaining, repairing, enlarging, furnishing or
41       remodeling facilities, it shall obtain from the state and furnish to
42       the contractor an exemption certificate for the project involved,
43       and the contractor may purchase materials for incorporation in

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  1       such project. The contractor shall furnish the number of such cer-
  2       tificate to all suppliers from whom such purchases are made, and
  3       such suppliers shall execute invoices covering the same bearing
  4       the number of such certificate. Upon completion of the project the
  5       contractor shall furnish to the political subdivision, hospital or
  6       public hospital authority, school or educational institution con-
  7       cerned a sworn statement, on a form to be provided by the director
  8       of taxation, that all purchases so made were entitled to exemption
  9       under this subsection. As an alternative to the foregoing proce-
10       dure, any such contracting entity may apply to the secretary of
11       revenue for agent status for the sole purpose of issuing and fur-
12       nishing project exemption certificates to contractors pursuant to
13       rules and regulations adopted by the secretary establishing con-
14       ditions and standards for the granting and maintaining of such
15       status. All invoices shall be held by the contractor for a period of
16       five years and shall be subject to audit by the director of taxation.
17       If any materials purchased under such a certificate are found not
18       to have been incorporated in the building or other project or not
19       to have been returned for credit or the sales or compensating tax
20       otherwise imposed upon such materials which will not be so in-
21       corporated in the building or other project reported and paid by
22       such contractor to the director of taxation not later than the 20th
23       day of the month following the close of the month in which it shall
24       be determined that such materials will not be used for the purpose
25       for which such certificate was issued, the political subdivision, hos-
26       pital or public hospital authority, school or educational institution
27       concerned shall be liable for tax on all materials purchased for the
28       project, and upon payment thereof it may recover the same from
29       the contractor together with reasonable attorney fees. Any con-
30       tractor or any agent, employee or subcontractor thereof, who shall
31       use or otherwise dispose of any materials purchased under such a
32       certificate for any purpose other than that for which such a certif-
33       icate is issued without the payment of the sales or compensating
34       tax otherwise imposed upon such materials, shall be guilty of a
35       misdemeanor and, upon conviction therefor, shall be subject to the
36       penalties provided for in subsection (g) of K.S.A. 79-3615, and
37       amendments thereto;
38             (e) all sales of tangible personal property or services purchased
39       by a contractor for the erection, repair or enlargement of buildings
40       or other projects for the government of the United States, its agen-
41       cies or instrumentalities, which would be exempt from taxation if
42       purchased directly by the government of the United States, its
43       agencies or instrumentalities. When the government of the United

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  1       States, its agencies or instrumentalities shall contract for the erec-
  2       tion, repair, or enlargement of any building or other project, it
  3       shall obtain from the state and furnish to the contractor an ex-
  4       emption certificate for the project involved, and the contractor
  5       may purchase materials for incorporation in such project. The con-
  6       tractor shall furnish the number of such certificates to all suppliers
  7       from whom such purchases are made, and such suppliers shall ex-
  8       ecute invoices covering the same bearing the number of such cer-
  9       tificate. Upon completion of the project the contractor shall fur-
10       nish to the government of the United States, its agencies or
11       instrumentalities concerned a sworn statement, on a form to be
12       provided by the director of taxation, that all purchases so made
13       were entitled to exemption under this subsection. As an alternative
14       to the foregoing procedure, any such contracting entity may apply
15       to the secretary of revenue for agent status for the sole purpose
16       of issuing and furnishing project exemption certificates to con-
17       tractors pursuant to rules and regulations adopted by the secretary
18       establishing conditions and standards for the granting and main-
19       taining of such status. All invoices shall be held by the contractor
20       for a period of five years and shall be subject to audit by the di-
21       rector of taxation. Any contractor or any agent, employee or sub-
22       contractor thereof, who shall use or otherwise dispose of any ma-
23       terials purchased under such a certificate for any purpose other
24       than that for which such a certificate is issued without the payment
25       of the sales or compensating tax otherwise imposed upon such ma-
26       terials, shall be guilty of a misdemeanor and, upon conviction
27       therefor, shall be subject to the penalties provided for in subsec-
28       tion (g) of K.S.A. 79-3615 and amendments thereto;
29             (f) tangible personal property purchased by a railroad or pub-
30       lic utility for consumption or movement directly and immediately
31       in interstate commerce;
32             (g) sales of aircraft including remanufactured and modified
33       aircraft, sales of aircraft repair, modification and replacement
34       parts and sales of services employed in the remanufacture, modi-
35       fication and repair of aircraft sold to persons using directly or
36       through an authorized agent such aircraft and aircraft repair,
37       modification and replacement parts as certified or licensed carri-
38       ers of persons or property in interstate or foreign commerce under
39       authority of the laws of the United States or any foreign govern-
40       ment or sold to any foreign government or agency or instrumen-
41       tality of such foreign government and all sales of aircraft, aircraft
42       parts, replacement parts and services employed in the remanufac-
43       ture, modification and repair of aircraft for use outside of the

HB 2543--Am. by HCW

11

  1       United States;
  2             (h) all rentals of nonsectarian textbooks by public or private
  3       elementary or secondary schools;
  4             (i) the lease or rental of all films, records, tapes, or any type of
  5       sound or picture transcriptions used by motion picture exhibitors;
  6             (j) meals served without charge or food used in the preparation
  7       of such meals to employees of any restaurant, eating house, dining
  8       car, hotel, drugstore or other place where meals or drinks are reg-
  9       ularly sold to the public if such employees' duties are related to
10       the furnishing or sale of such meals or drinks;
11             (k) any motor vehicle, semitrailer or pole trailer, as such terms
12       are defined by K.S.A. 8-126 and amendments thereto, or aircraft
13       sold and delivered in this state to a bona fide resident of another
14       state, which motor vehicle, semitrailer, pole trailer or aircraft is
15       not to be registered or based in this state and which vehicle, sem-
16       itrailer, pole trailer or aircraft will not remain in this state more
17       than 10 days;
18             (l) all isolated or occasional sales of tangible personal property,
19       services, substances or things, except isolated or occasional sale of
20       motor vehicles specifically taxed under the provisions of subsec-
21       tion (o) of K.S.A. 79-3603 and amendments thereto;
22             (m) all sales of tangible personal property which become an
23       ingredient or component part of tangible personal property or
24       services produced, manufactured or compounded for ultimate sale
25       at retail within or without the state of Kansas; and any such pro-
26       ducer, manufacturer or compounder may obtain from the director
27       of taxation and furnish to the supplier an exemption certificate
28       number for tangible personal property for use as an ingredient or
29       component part of the property or services produced, manufac-
30       tured or compounded;
31             (n) all sales of tangible personal property which is consumed
32       in the production, manufacture, processing, mining, drilling, re-
33       fining or compounding of tangible personal property, the treating
34       of by-products or wastes derived from any such production pro-
35       cess, the providing of services or the irrigation of crops for ulti-
36       mate sale at retail within or without the state of Kansas; and any
37       purchaser of such property may obtain from the director of taxa-
38       tion and furnish to the supplier an exemption certificate number
39       for tangible personal property for consumption in such produc-
40       tion, manufacture, processing, mining, drilling, refining, com-
41       pounding, treating, irrigation and in providing such services;
42             (o) all sales of animals, fowl and aquatic plants and animals, the
43       primary purpose of which is use in agriculture or aquaculture, as

HB 2543--Am. by HCW

12

  1       defined in K.S.A. 47-1901, and amendments thereto, the produc-
  2       tion of food for human consumption, the production of animal,
  3       dairy, poultry or aquatic plant and animal products, fiber or fur,
  4       or the production of offspring for use for any such purpose or
  5       purposes;
  6             (p) all sales of drugs, as defined by K.S.A. 65-1626 and amend-
  7       ments thereto, dispensed pursuant to a prescription order, as de-
  8       fined by K.S.A. 65-1626 and amendments thereto, by a licensed
  9       practitioner;
10             (q) all sales of insulin dispensed by a person licensed by the
11       state board of pharmacy to a person for treatment of diabetes at
12       the direction of a person licensed to practice medicine by the
13       board of healing arts;
14             (r) all sales of prosthetic and orthopedic appliances prescribed
15       in writing by a person licensed to practice the healing arts, den-
16       tistry or optometry. For the purposes of this subsection, the term
17       prosthetic and orthopedic appliances means any apparatus, instru-
18       ment, device, or equipment used to replace or substitute for any
19       missing part of the body; used to alleviate the malfunction of any
20       part of the body; or used to assist any disabled person in leading
21       a normal life by facilitating such person's mobility; such term shall
22       include accessories attached or to be attached to motor vehicles,
23       but such term shall not include motor vehicles or personal prop-
24       erty which when installed becomes a fixture to real property;
25             (s) all sales of tangible personal property or services purchased
26       directly by a groundwater management district organized or op-
27       erating under the authority of K.S.A. 82a-1020 et seq. and amend-
28       ments thereto, which property or services are used in the opera-
29       tion or maintenance of the district;
30             (t) all sales of farm machinery and equipment or aquaculture
31       machinery and equipment, repair and replacement parts therefor
32       and services performed in the repair and maintenance of such ma-
33       chinery and equipment. For the purposes of this subsection the
34       term "farm machinery and equipment or aquaculture machinery
35       and equipment" shall include machinery and equipment used in
36       the operation of Christmas tree farming but shall not include any
37       passenger vehicle, truck, truck tractor, trailer, semitrailer or pole
38       trailer, other than a farm trailer, as such terms are defined by
39       K.S.A. 8-126 and amendments thereto. Each purchaser of farm
40       machinery and equipment or aquaculture machinery and equip-
41       ment exempted herein must certify in writing on the copy of the
42       invoice or sales ticket to be retained by the seller that the farm
43       machinery and equipment or aquaculture machinery and equip-

HB 2543--Am. by HCW

13

  1       ment purchased will be used only in farming, ranching or aqua-
  2       culture production. Farming or ranching shall include the opera-
  3       tion of a feedlot and farm and ranch work for hire and the
  4       operation of a nursery;
  5             (u) all leases or rentals of tangible personal property used as a
  6       dwelling if such tangible personal property is leased or rented for
  7       a period of more than 28 consecutive days;
  8             (v) all sales of food products to any contractor for use in pre-
  9       paring meals for delivery to homebound elderly persons over 60
10       years of age and to homebound disabled persons or to be served
11       at a group-sitting at a location outside of the home to otherwise
12       homebound elderly persons over 60 years of age and to otherwise
13       homebound disabled persons, as all or part of any food service
14       project funded in whole or in part by government or as part of a
15       private nonprofit food service project available to all such elderly
16       or disabled persons residing within an area of service designated
17       by the private nonprofit organization, and all sales of food prod-
18       ucts for use in preparing meals for consumption by indigent or
19       homeless individuals whether or not such meals are consumed at
20       a place designated for such purpose;
21             (w) all sales of natural gas, electricity, heat and water delivered
22       through mains, lines or pipes: (1) To residential premises for non-
23       commercial use by the occupant of such premises; (2) for agricul-
24       tural use and also, for such use, all sales of propane gas; (3) for use
25       in the severing of oil; and (4) to any property which is exempt from
26       property taxation pursuant to K.S.A. 79-201b Second through Sixth.
27       As used in this paragraph, "severing" shall have the meaning as-
28       cribed thereto by subsection (k) of K.S.A. 79-4216, and amend-
29       ments thereto;
30             (x) all sales of propane gas, LP-gas, coal, wood and other fuel
31       sources for the production of heat or lighting for noncommercial
32       use of an occupant of residential premises;
33             (y) all sales of materials and services used in the repairing,
34       servicing, altering, maintaining, manufacturing, remanufacturing,
35       or modification of railroad rolling stock for use in interstate or
36       foreign commerce under authority of the laws of the United States;
37             (z) all sales of tangible personal property and services pur-
38       chased directly by a port authority or by a contractor therefor as
39       provided by the provisions of K.S.A. 12-3418 and amendments
40       thereto;
41             (aa) all sales of materials and services applied to equipment
42       which is transported into the state from without the state for re-
43       pair, service, alteration, maintenance, remanufacture or modifi-

HB 2543--Am. by HCW

14

  1       cation and which is subsequently transported outside the state for
  2       use in the transmission of liquids or natural gas by means of pipe-
  3       line in interstate or foreign commerce under authority of the laws
  4       of the United States;
  5             (bb) all sales of used mobile homes or manufactured homes.
  6       As used in this subsection: (1) "Mobile homes" and "manufactured
  7       homes" shall have the meanings ascribed thereto by K.S.A. 58-
  8       4202 and amendments thereto; and (2) "sales of used mobile
  9       homes or manufactured homes" means sales other than the orig-
10       inal retail sale thereof;
11             (cc) all sales of tangible personal property or services pur-
12       chased for the purpose of and in conjunction with constructing,
13       reconstructing, enlarging or remodeling a business or retail busi-
14       ness which meets the requirements established in K.S.A. 74-50,115
15       and amendments thereto, and the sale and installation of machin-
16       ery and equipment purchased for installation at any such business
17       or retail business. When a person shall contract for the construc-
18       tion, reconstruction, enlargement or remodeling of any such busi-
19       ness or retail business, such person shall obtain from the state and
20       furnish to the contractor an exemption certificate for the project
21       involved, and the contractor may purchase materials, machinery
22       and equipment for incorporation in such project. The contractor
23       shall furnish the number of such certificates to all suppliers from
24       whom such purchases are made, and such suppliers shall execute
25       invoices covering the same bearing the number of such certificate.
26       Upon completion of the project the contractor shall furnish to the
27       owner of the business or retail business a sworn statement, on a
28       form to be provided by the director of taxation, that all purchases
29       so made were entitled to exemption under this subsection. All in-
30       voices shall be held by the contractor for a period of five years and
31       shall be subject to audit by the director of taxation. Any contractor
32       or any agent, employee or subcontractor thereof, who shall use or
33       otherwise dispose of any materials, machinery or equipment pur-
34       chased under such a certificate for any purpose other than that for
35       which such a certificate is issued without the payment of the sales
36       or compensating tax otherwise imposed thereon, shall be guilty of
37       a misdemeanor and, upon conviction therefor, shall be subject to
38       the penalties provided for in subsection (g) of K.S.A. 79-3615 and
39       amendments thereto. As used in this subsection, "business" and
40       "retail business" have the meanings respectively ascribed thereto
41       by K.S.A. 74-50,114 and amendments thereto;
42             (dd) all sales of tangible personal property purchased with
43       food stamps issued by the United States department of agriculture;

HB 2543--Am. by HCW

15

  1             (ee) all sales of lottery tickets and shares made as part of a
  2       lottery operated by the state of Kansas;
  3             (ff) on and after July 1, 1988, all sales of new mobile homes or
  4       manufactured homes to the extent of 40% of the gross receipts,
  5       determined without regard to any trade-in allowance, received
  6       from such sale. As used in this subsection, "mobile homes" and
  7       "manufactured homes" shall have the meanings ascribed thereto
  8       by K.S.A. 58-4202 and amendments thereto;
  9             (gg) all sales of tangible personal property purchased in ac-
10       cordance with vouchers issued pursuant to the federal special sup-
11       plemental food program for women, infants and children;
12             (hh) all sales of medical supplies and equipment purchased di-
13       rectly by a nonprofit skilled nursing home or nonprofit interme-
14       diate nursing care home, as defined by K.S.A. 39-923, and amend-
15       ments thereto, for the purpose of providing medical services to
16       residents thereof. This exemption shall not apply to tangible per-
17       sonal property customarily used for human habitation purposes;
18             (ii) all sales of tangible personal property purchased directly
19       by a nonprofit organization for nonsectarian comprehensive mul-
20       tidiscipline youth development programs and activities provided
21       or sponsored by such organization, and all sales of tangible per-
22       sonal property by or on behalf of any such organization. This ex-
23       emption shall not apply to tangible personal property customarily
24       used for human habitation purposes;
25             (jj) all sales of tangible personal property or services, including
26       the renting and leasing of tangible personal property, purchased
27       directly on behalf of a community-based mental retardation facility
28       or mental health center organized pursuant to K.S.A. 19-4001 et
29       seq., and amendments thereto, and licensed in accordance with the
30       provisions of K.S.A. 75-3307b and amendments thereto. This ex-
31       emption shall not apply to tangible personal property customarily
32       used for human habitation purposes;
33             (kk) on and after January 1, 1989, all sales of machinery and equip-
34       ment used directly and primarily for the purposes of manufacturing, as-
35       sembling, processing, finishing, storing, warehousing or distributing ar-
36       ticles of tangible personal property in this state intended for resale by a
37       manufacturing or processing plant or facility or a storage, warehousing or
38       distribution facility, and all sales of repair and replacement parts and
39       accessories purchased for such machinery and equipment:
40             (1) For purposes of this subsection, machinery and equipment shall
41       be deemed to be used directly and primarily in the manufacture, assem-
42       blage, processing, finishing, storing, warehousing or distributing of tan-
43       gible personal property where such machinery and equipment is used

HB 2543--Am. by HCW

16

  1       during a manufacturing, assembling, processing or finishing, storing,
  2       warehousing or distributing operation:
  3             (A) To effect a direct and immediate physical change upon the tan-
  4       gible personal property;
  5             (B) to guide or measure a direct and immediate physical change upon
  6       such property where such function is an integral and essential part of
  7       tuning, verifying or aligning the component parts of such property;
  8             (C) to test or measure such property where such function is an in-
  9       tegral part of the production flow or function;
10             (D) to transport, convey or handle such property during the manu-
11       facturing, processing, storing, warehousing or distribution operation at
12       the plant or facility; or
13             (E) to place such property in the container, package or wrapping in
14       which such property is normally sold or transported.
15             (2)  For purposes of this subsection "machinery and equipment used
16       directly and primarily" shall include, but not be limited to:
17             (A) Mechanical machines or components thereof contributing to a
18       manufacturing, assembling or finishing process;
19             (B) molds and dies that determine the physical characteristics of the
20       finished product or its packaging material;
21             (C) testing equipment to determine the quality of the finished
22       product;
23             (D) computers and related peripheral equipment that directly control
24       or measure the manufacturing process or which are utilized for engi-
25       neering of the finished product; and
26             (E) computers and related peripheral equipment utilized for research
27       and development and product design.
28             (3) "Machinery and equipment used directly and primarily" shall not
29       include:
30             (A) Hand tools;
31             (B) machinery, equipment and tools used in maintaining and repair-
32       ing any type of machinery and equipment;
33             (C) transportation equipment not used in the manufacturing, assem-
34       bling, processing, furnishing, storing, warehousing or distributing process
35       at the plant or facility;
36             (D) office machines and equipment including computers and related
37       peripheral equipment not directly and primarily used in controlling or
38       measuring the manufacturing process;
39             (E) furniture and buildings; and
40             (F) machinery and equipment used in administrative, accounting,
41       sales or other such activities of the business;
42             (4) for purposes of this subsection, "repair and replacement parts and
43       accessories" means all parts and accessories for exempt machinery and

HB 2543--Am. by HCW

17

  1       equipment, including but not limited to dies, jigs, molds, and patterns
  2       which are attached to exempt machinery or which are otherwise used in
  3       production, short-lived replaceable parts that can be readily detached
  4       from exempt machinery or equipment, such as belts, drill bits, grinding
  5       wheels, cutting bars and saws, and other replacement parts for production
  6       equipment, including refractory brick and other refractory items for kiln
  7       equipment used in production operations
  8             (1)  (A) all sales of machinery and equipment which are used in this
  9       state as an integral or essential part of an integrated production operation
10       by a manufacturing or processing plant or facility;
11             (B) all sales of installation, repair and maintenance services per-
12       formed on such machinery and equipment; and
13             (C) all sales of repair and replacement parts and accessories pur-
14       chased for such machinery and equipment.
15             (2) For purposes of this subsection:
16             (A) "Integrated production operation" means an integrated series of
17       operations engaged in at a manufacturing or processing plant or facility
18       to process, transform or convert tangible personal property by physical,
19       chemical or other means into a different form, composition or character
20       from that in which it originally existed. Integrated production operations
21       shall include: (i) Production line operations, including packaging opera-
22       tions; (ii) preproduction operations to handle, store and treat raw mate-
23       rials; (iii) post production handling, storage, warehousing and distribu-
24       tion operations; and (iv) waste, pollution and environmental control
25       operations, if any;
26             (B) "production line" means the assemblage of machinery and equip-
27       ment at a manufacturing or processing plant or facility where the actual
28       transformation or processing of tangible personal property occurs;
29             (C) "manufacturing or processing plant or facility" means a single,
30       fixed location owned or controlled by a manufacturing or processing busi-
31       ness that consists of one or more structures or buildings in a contiguous
32       area where integrated production operations are conducted to manufac-
33       ture or process tangible personal property to be ultimately sold at retail.
34       A business may operate one or more manufacturing or processing plants
35       or facilities at different locations to manufacture or process a single prod-
36       uct of tangible personal property to be ultimately sold at retail;
37             (D) "manufacturing or processing business" means a business that
38       utilizes an integrated production operation to manufacture, process, fab-
39       ricate, finish, or assemble items for wholesale and retail distribution as
40       part of what is commonly regarded by the general public as an industrial
41       manufacturing or processing operation or an agricultural commodity
42       processing operation. (i) Industrial manufacturing or processing opera-
43       tions include, by way of illustration but not of limitation, the fabrication

HB 2543--Am. by HCW

18

  1       of automobiles, airplanes, machinery or transportation equipment, the
  2       fabrication of metal, plastic, wood, or paper products, electricity power
  3       generation, water treatment, petroleum refining, chemical production,
  4       wholesale bottling, newspaper printing, ready mixed concrete production,
  5       and the remanufacturing of used parts for wholesale or retail sale. Such
  6       processing operations shall include operations at an oil well, gas well, mine
  7       or other excavation site where the oil, gas, minerals, coal, clay, stone, sand
  8       or gravel that has been extracted from the earth is cleaned, separated,
  9       crushed, ground, milled, screened, washed, or otherwise treated or pre-
10       pared before its transmission to a refinery or before any other wholesale
11       or retail distribution. (ii) Agricultural commodity processing operations
12       include, by way of illustration but not of limitation, meat packing, poultry
13       slaughtering and dressing, processing and packaging farm and dairy
14       products in sealed containers for wholesale and retail distribution, feed
15       grinding, grain milling, frozen food processing, and grain handling, clean-
16       ing, blending, fumigation, drying and aeration operations engaged in by
17       grain elevators or other grain storage facilities. (iii) Manufacturing or
18       processing businesses do not include, by way of illustration but not of
19       limitation, nonindustrial businesses whose operations are primarily retail
20       and that produce or process tangible personal property as an incidental
21       part of conducting the retail business, such as retailers who bake, cook or
22       prepare food products in the regular course of their retail trade, grocery
23       stores, meat lockers and meat markets that butcher or dress livestock or
24       poultry in the regular course of their retail trade, contractors who alter,
25       service, repair or improve real property, and retail businesses that clean,
26       service or refurbish and repair tangible personal property for its owner;
27             (E) "repair and replacement parts and accessories" means all parts
28       and accessories for exempt machinery and equipment, including, but not
29       limited to, dies, jigs, molds, patterns and safety devices that are attached
30       to exempt machinery or that are otherwise used in production, and parts
31       and accessories that require periodic replacement such as belts, drill bits,
32       grinding wheels, grinding balls, cutting bars, saws, refractory brick and
33       other refractory items for exempt kiln equipment used in production
34       operations;
35             (F) "primary" or "primarily" mean more than 50% of the time.
36             (3) For purposes of this subsection, machinery and equipment shall
37       be deemed to be used as an integral or essential part of an integrated
38       production operation when used:
39             (A) To receive, transport, convey, handle, treat or store raw materials
40       in preparation of its placement on the production line;
41             (B) to transport, convey, handle or store the property undergoing
42       manufacturing or processing at any point from the beginning of the pro-
43       duction line through any warehousing or distribution operation of the

HB 2543--Am. by HCW

19

  1       final product that occurs at the plant or facility;
  2             (C) to act upon, effect, promote or otherwise facilitate a physical
  3       change to the property undergoing manufacturing or processing;
  4             (D) to guide, control or direct the movement of property undergoing
  5       manufacturing or processing;
  6             (E) to test or measure raw materials, the property undergoing man-
  7       ufacturing or processing or the finished product, as a necessary part of
  8       the manufacturer's integrated production operations;
  9             (F) to plan, manage, control or record the receipt and flow of inven-
10       tories of raw materials, consumables and component parts, the flow of the
11       property undergoing manufacturing or processing and the management
12       of inventories of the finished product;
13             (G) to produce energy for, lubricate, control the operating of or oth-
14       erwise enable the functioning of other production machinery and equip-
15       ment and the continuation of production operations;
16             (H) to package the property being manufactured or processed in a
17       container or wrapping in which such property is normally sold or
18       transported;
19             (I) to transmit or transport electricity, coke, gas, water, steam or sim-
20       ilar substances used in production operations from the point of generation,
21       if produced by the manufacturer or processor at the plant site, to that
22       manufacturer's production operation; or, if purchased or delivered from
23       offsite, from the point where the substance enters the site of the plant or
24       facility to that manufacturer's production operations;
25             (J) to cool, heat, filter, refine or otherwise treat water, steam, acid,
26       oil, solvents or other substances that are used in production operations;
27             (K) to provide and control an environment required to maintain cer-
28       tain levels of air quality, humidity or temperature in special and limited
29       areas of the plant or facility, where such regulation of temperature or
30       humidity is part of and essential to the production process;
31             (L) to treat, transport or store waste or other byproducts of produc-
32       tion operations at the plant or facility; or
33             (M) to control pollution at the plant or facility where the pollution is
34       produced by the manufacturing or processing operation.
35             (4) The following machinery, equipment and materials shall be
36       deemed to be exempt even though it may not otherwise qualify as ma-
37       chinery and equipment used as an integral or essential part of an inte-
38       grated production operation: (A) Computers and related peripheral
39       equipment that are utilized by a manufacturing or processing business for
40       engineering of the finished product or for research and development or
41       product design; (B) machinery and equipment that is utilized by a man-
42       ufacturing or processing business to manufacture or rebuild tangible per-
43       sonal property that is used in manufacturing or processing operations,

HB 2543--Am. by HCW

20

  1       including tools, dies, molds, forms and other parts of qualifying machinery
  2       and equipment; (C) oil and gas drilling services and supplies, and drilling,
  3       pumping and monitoring equipment, used at a well site or in oil and gas
  4       exploration; (D) portable plants for aggregate concrete, bulk cement and
  5       asphalt including mobile cement mixer trucks; (E) industrial fixtures, de-
  6       vices, support facilities and special foundations necessary for manufac-
  7       turing and production operations, and materials and other tangible per-
  8       sonal property sold for the purpose of fabricating such fixtures, devices,
  9       facilities and foundations. An exemption certificate for such purchases
10       shall be signed by the manufacturer or processor. If the fabricator pur-
11       chases such material, the fabricator shall also sign the exemption certifi-
12       cate; and (F) a manufacturing or processing business' laboratory equip-
13       ment that is not located at the plant or facility, but that would otherwise
14       qualify for exemption under subsection (3)(E).
15             (5) "Machinery and equipment used as an integral or essential part
16       of an integrated production operation" shall not include:
17             (A) Machinery and equipment used for nonproduction purposes, in-
18       cluding, but not limited to, machinery and equipment used for plant se-
19       curity, fire prevention, first aid, accounting, administration, record keep-
20       ing, advertising, marketing, sales or other related activities, plant
21       cleaning, plant communications, and employee work scheduling;
22             (B) machinery, equipment and tools used primarily in maintaining
23       and repairing any type of machinery and equipment or the building and
24       plant;
25             (C) transportation equipment not primarily used in a production,
26       warehousing or material handling operation at the plant or facility;
27             (D) office machines and equipment including computers and related
28       periheral equipment not used directly and primarily to control or measure
29       the manufacturing process;
30             (E) furniture and other furnishings;
31             (F) buildings, other than exempt machinery and equipment that is
32       permanently affixed to or becomes a physical part of the building, and
33       any other part of real estate that is not otherwise exempt;
34             (G) building fixtures that are not integral to the manufacturing op-
35       eration, such as utility systems for heating, ventilation, air conditioning,
36       communications, plumbing or electrical;
37             (H) machinery and equipment used for general plant heating, cooling
38       and lighting;
39             (I) motor vehicles that are registered for operation on public high-
40       ways; or
41             (J) employee apparel, except safety and protective apparel that is pur-
42       chased by an employer and furnished gratuitously to employees who are
43       involved in production or research activities.

HB 2543--Am. by HCW

21

  1             (6) Subsections (3) and (5) shall not be construed as exclusive listings
  2       of the machinery and equipment that qualify or do not qualify as an
  3       integral or essential part of an integrated production operation. When
  4       machinery or equipment is used as an integral or essential part of pro-
  5       duction operations part of the time and for nonproduction purpose at
  6       other times, the primary use of the machinery or equipment shall deter-
  7       mine whether or not such machinery or equipment qualifies for
  8       exemption.
  9             (7) The secretary of revenue shall adopt rules and regulations nec-
10       essary to administer the provisions of this subsection;
11             (ll) all sales of educational materials purchased for distribution
12       to the public at no charge by a nonprofit corporation organized
13       for the purpose of encouraging, fostering and conducting pro-
14       grams for the improvement of public health;
15             (mm) all sales of seeds and tree seedlings; fertilizers, insecti-
16       cides, herbicides, germicides, pesticides and fungicides; and serv-
17       ices, purchased and used for the purpose of producing plants in
18       order to prevent soil erosion on land devoted to agricultural use;
19             (nn) except as otherwise provided in this act, all sales of serv-
20       ices rendered by an advertising agency or licensed broadcast sta-
21       tion or any member, agent or employee thereof;
22             (oo) all sales of tangible personal property purchased by a com-
23       munity action group or agency for the exclusive purpose of re-
24       pairing or weatherizing housing occupied by low income
25       individuals;
26             (pp) all sales of drill bits and explosives actually utilized in the ex-
27       ploration and production of oil or gas material handling equipment, rack-
28       ing systems and other related machinery and equipment that is used for
29       the handling, movement or storage of tangible personal property in a
30       warehouse or distribution facility in this state; all sales of installation,
31       repair and maintenance services performed on such machinery and equip-
32       ment; and all sales of repair and replacement parts for such machinery
33       and equipment. For purposes of this subsection, a warehouse or distri-
34       bution facility means a single, fixed location that consists of buildings or
35       structures in a contiguous area where storage or distribution operations
36       are conducted that are separate and apart from the business' retail op-
37       erations, if any, and which do not otherwise qualify for exemption as
38       occurring at a manufacturing or processing plant or facility. Material
39       handling and storage equipment shall include aeration, dust control,
40       cleaning, handling and other such equipment that is used in a public grain
41       warehouse or other grain storage facility, whether used for grain han-
42       dling, grain storage, grain refining or processing, or other grain treatment
43       operation;

HB 2543--Am. by HCW

22

  1             (qq) all sales of tangible personal property and services pur-
  2       chased by a nonprofit museum or historical society or any combi-
  3       nation thereof, including a nonprofit organization which is organ-
  4       ized for the purpose of stimulating public interest in the
  5       exploration of space by providing educational information, exhib-
  6       its and experiences, which is exempt from federal income taxation
  7       pursuant to section 501(c)(3) of the federal internal revenue code
  8       of 1986;
  9             (rr) all sales of tangible personal property which will admit the
10       purchaser thereof to any annual event sponsored by a nonprofit
11       organization which is exempt from federal income taxation pur-
12       suant to section 501(c)(3) of the federal internal revenue code of
13       1986;
14             (ss) all sales of tangible personal property and services pur-
15       chased by a public broadcasting station licensed by the federal
16       communications commission as a noncommercial educational tel-
17       evision or radio station;
18             (tt) all sales of tangible personal property and services pur-
19       chased by or on behalf of a not-for-profit corporation which is ex-
20       empt from federal income taxation pursuant to section 501(c)(3)
21       of the federal internal revenue code of 1986, for the sole purpose
22       of constructing a Kansas Korean War memorial;
23             (uu) all sales of tangible personal property and services pur-
24       chased by or on behalf of any rural volunteer fire-fighting organ-
25       ization for use exclusively in the performance of its duties and
26       functions;
27             (vv) all sales of tangible personal property purchased by any of
28       the following organizations which are exempt from federal income
29       taxation pursuant to section 501 (c)(3) of the federal internal rev-
30       enue code of 1986, for the following purposes, and all sales of any
31       such property by or on behalf of any such organization for any
32       such purpose:
33             (1) The American Heart Association, Kansas Affiliate, Inc. for
34       the purposes of providing education, training, certification in
35       emergency cardiac care, research and other related services to
36       reduce disability and death from cardiovascular diseases and
37       stroke;
38             (2) the Kansas Alliance for the Mentally Ill, Inc. for the purpose
39       of advocacy for persons with mental illness and to education, re-
40       search and support for their families;
41             (3) the Kansas Mental Illness Awareness Council for the pur-
42       poses of advocacy for persons who are mentally ill and to educa-
43       tion, research and support for them and their families;

HB 2543--Am. by HCW

23

  1             (4) the American Diabetes Association Kansas Affiliate, Inc. for
  2       the purpose of eliminating diabetes through medical research,
  3       public education focusing on disease prevention and education,
  4       patient education including information on coping with diabetes,
  5       and professional education and training;
  6             (5) the American Lung Association of Kansas, Inc. for the pur-
  7       pose of eliminating all lung diseases through medical research,
  8       public education including information on coping with lung dis-
  9       eases, professional education and training related to lung disease
10       and other related services to reduce the incidence of disability and
11       death due to lung disease;
12             (6) the Kansas chapters of the Alzheimer's Disease and Related
13       Disorders Association, Inc. for the purpose of providing assistance
14       and support to persons in Kansas with Alzheimer's disease, and
15       their families and caregivers; and
16             (ww) all sales of tangible personal property purchased by the
17       Habitat for Humanity for the exclusive use of being incorporated
18       within a housing project constructed by such organization.;
19             (xx) all sales of tangible personal property and services pur-
20       chased by a nonprofit zoo which is exempt from federal income
21       taxation pursuant to section 501 (c)(3) of the federal internal rev-
22       enue code of 1986, or on behalf of such zoo by an entity itself
23       exempt from federal income taxation pursuant to section 50 501
24       (c)(3) of the federal internal revenue code of 1986 contracted with
25       to operate such zoo and all sales of tangible personal property or
26       services purchased by a contractor for the purpose of constructing,
27       equipping, reconstructing, maintaining, repairing, enlarging, fur-
28       nishing or remodeling facilities for any nonprofit zoo which would
29       be exempt from taxation under the provisions of this section if
30       purchased directly by such nonprofit zoo or the entity operating
31       such zoo. Nothing in this subsection shall be deemed to exempt
32       the purchase of any construction machinery, equipment or tools
33       used in the constructing, equipping, reconstructing, maintaining,
34       repairing, enlarging, furnishing or remodeling facilities for any
35       nonprofit zoo. When any nonprofit zoo shall contract for the pur-
36       pose of constructing, equipping, reconstructing, maintaining, re-
37       pairing, enlarging, furnishing or remodeling facilities, it shall ob-
38       tain from the state and furnish to the contractor an exemption
39       certificate for the project involved, and the contractor may pur-
40       chase materials for incorporation in such project. The contractor
41       shall furnish the number of such certificate to all suppliers from
42       whom such purchases are made, and such suppliers shall execute
43       invoices covering the same bearing the number of such certificate.

HB 2543--Am. by HCW

24

  1       Upon completion of the project the contractor shall furnish to the
  2       nonprofit zoo concerned a sworn statement, on a form to be pro-
  3       vided by the director of taxation, that all purchases so made were
  4       entitled to exemption under this subsection. All invoices shall be
  5       held by the contractor for a period of five years and shall be subject
  6       to audit by the director of taxation. If any materials purchased
  7       under such a certificate are found not to have been incorporated
  8       in the building or other project or not to have been returned for
  9       credit or the sales or compensating tax otherwise imposed upon
10       such materials which will not be so incorporated in the building
11       or other project reported and paid by such contractor to the di-
12       rector of taxation not later than the 20th day of the month follow-
13       ing the close of the month in which it shall be determined that
14       such materials will not be used for the purpose for which such
15       certificate was issued, the nonprofit zoo concerned shall be liable
16       for tax on all materials purchased for the project, and upon pay-
17       ment thereof it may recover the same from the contractor together
18       with reasonable attorney fees. Any contractor or any agent, em-
19       ployee or subcontractor thereof, who shall use or otherwise dis-
20       pose of any materials purchased under such a certificate for any
21       purpose other than that for which such a certificate is issued with-
22       out the payment of the sales or compensating tax otherwise im-
23       posed upon such materials, shall be guilty of a misdemeanor and,
24       upon conviction therefor, shall be subject to the penalties provided
25       for in subsection (g) of K.S.A. 79-3615, and amendments thereto;
26             (yy) all sales of tangible personal property and services pur-
27       chased by a parent-teacher association or organization, and all
28       sales of tangible personal property by or on behalf of such asso-
29       ciation or organization;
30             (zz) all sales of machinery and equipment purchased by over-
31       the-air, free access radio or television station which is used directly
32       and primarily for the purpose of producing a broadcast signal or
33       is such that the failure of the machinery or equipment to operate
34       would cause broadcasting to cease. For purposes of this subsec-
35       tion, machinery and equipment shall include, but not be limited
36       to, that required by rules and regulations of the federal commu-
37       nications commission, and all sales of electricity which are essential
38       or necessary for the purpose of producing a broadcast signal or is
39       such that the failure of the electricity would cause broadcasting to
40       cease;
41             (aaa) all sales of tangible personal property and services pur-
42       chased by a religious organization which is exempt from federal
43       income taxation pursuant to section 501 (c)(3) of the federal inter-

HB 2543--Am. by HCW

25

  1       nal revenue code, and used exclusively for religious purposes; and
  2             (bbb) all sales of food for human consumption by an organi-
  3       zation which is exempt from federal income taxation pursuant to
  4       section 501 (c)(3) of the federal internal revenue code of 1986,
  5       pursuant to a food distribution program which offers such food at
  6       a price below cost in exchange for the performance of community
  7       service by the purchaser thereof.[; and
  8             [(ccc) all sales of tangible personal property and services pur-
  9       chased to repair or replace tangible personal property or real
10       property which was damaged or destroyed in this state as a result
11       of a weather related event or occurrence which the president of
12       the United States has declared, pursuant to federal law, to be a
13       major disaster, and grants from the federal government to meet
14       disaster related expenses resulting from such event or occurrence
15       have been authorized. No such sale shall be exempt hereunder
16       unless occurring within three years after the date of such decla-
17       ration. Sales tax paid on and after October 1, 1998, but prior to
18       the effective date of this act upon the gross receipts received from
19       any such sale shall be refunded if such claim is filed on or before
20       July 1, 2000. Also, in the event that any such sale occurs after any
21       such event or occurrence but before any such declaration, a sales
22       tax refund shall be allowed if claimed within nine months after the
23       date of such declaration. Each claim for a sales tax refund shall be
24       verified and submitted to the director of taxation upon forms fur-
25       nished by the director and shall be accompanied by any additional
26       documentation required by the director. The director shall review
27       each claim and shall refund that amount of sales tax paid as deter-
28       mined under the provisions of this section. All refunds shall be paid
29       from the sales tax refund fund upon warrants of the director of
30       accounts and reports pursuant to vouchers approved by the direc-
31       tor or the director's designee.]
32             Sec.  6. K.S.A. 1998 Supp. 79-4217 is hereby amended to read
33       as follows: 79-4217. (a) There is hereby imposed an excise tax upon
34       the severance and production of coal, oil or gas from the earth or
35       water in this state for sale, transport, storage, profit or commercial
36       use, subject to the following provisions of this section. Such tax
37       shall be borne ratably by all persons within the term "producer"
38       as such term is defined in K.S.A. 79-4216, and amendments
39       thereto, in proportion to their respective beneficial interest in the
40       coal, oil or gas severed. Such tax shall be applied equally to all
41       portions of the gross value of each barrel of oil severed and subject
42       to such tax and to the gross value of the gas severed and subject
43       to such tax. The rate of such tax shall be 8% of the gross value of

HB 2543--Am. by HCW

26

  1       all oil or gas severed from the earth or water in this state and
  2       subject to the tax imposed under this act. The rate of such tax with
  3       respect to coal shall be $1 per ton. For the purposes of the tax
  4       imposed hereunder the amount of oil or gas produced shall be
  5       measured or determined: (1) In the case of oil, by tank tables com-
  6       piled to show 100% of the full capacity of tanks without deduction
  7       for overage or losses in handling; allowance for any reasonable and
  8       bona fide deduction for basic sediment and water, and for correc-
  9       tion of temperature to 60 degrees Fahrenheit will be allowed; and
10       if the amount of oil severed has been measured or determined by
11       tank tables compiled to show less than 100% of the full capacity of
12       tanks, such amount shall be raised to a basis of 100% for the pur-
13       pose of the tax imposed by this act; and (2) in the case of gas, by
14       meter readings showing 100% of the full volume expressed in cu-
15       bic feet at a standard base and flowing temperature of 60 degrees
16       Fahrenheit, and at the absolute pressure at which the gas is sold
17       and purchased; correction to be made for pressure according to
18       Boyle's law, and used for specific gravity according to the gravity
19       at which the gas is sold and purchased, or if not so specified, ac-
20       cording to the test made by the balance method.
21             (b) The following shall be exempt from the tax imposed under
22       this section:
23             (1) The severance and production of gas which is: (A) Injected
24       into the earth for the purpose of lifting oil, recycling or repres-
25       suring; (B) used for fuel in connection with the operation and de-
26       velopment for, or production of, oil or gas in the lease or produc-
27       tion unit where severed; (C) lawfully vented or flared; (D) severed
28       from a well having an average daily production during a calendar
29       month having a gross value of not more than $87 per day, which
30       well has not been significantly curtailed by reason of mechanical
31       failure or other disruption of production; in the event that the
32       production of gas from more than one well is gauged by a common
33       meter, eligibility for exemption hereunder shall be determined by
34       computing the gross value of the average daily combined produc-
35       tion from all such wells and dividing the same by the number of
36       wells gauged by such meter; (E) inadvertently lost on the lease or
37       production unit by reason of leaks, blowouts or other accidental
38       losses; (F) used or consumed for domestic or agricultural purposes
39       on the lease or production unit from which it is severed; or (G)
40       placed in underground storage for recovery at a later date and
41       which was either originally severed outside of the state of Kansas,
42       or as to which the tax levied pursuant to this act has been paid;
43             (2) the severance and production of oil which is: (A) From a

HB 2543--Am. by HCW

27

  1       lease or production unit whose average daily production is five
  2       barrels or less per producing well, which well or wells have not
  3       been significantly curtailed by reason of mechanical failure or
  4       other disruption of production; (B) from a lease or production unit,
  5       the producing well or wells upon which have a completion depth
  6       of 2,000 feet or more, and whose average daily production is six
  7       barrels or less per producing well or, if the price of oil as deter-
  8       mined pursuant to subsection (d) is $16 or less, whose average daily
  9       production is seven barrels or less per producing well, or, if the
10       price of oil as determined pursuant to subsection (d) is $15 or less,
11       whose average daily production is eight barrels or less per pro-
12       ducing well, or, if the price of oil as determined pursuant to sub-
13       section (d) is $14 or less, whose average daily production is nine
14       barrels or less per producing well, or, if the price of oil as deter-
15       mined pursuant to subsection (d) is $13 or less, whose average daily
16       production is 10 barrels or less per producing well, which well or
17       wells have not been significantly curtailed by reason of mechanical
18       failure or other disruption of production; (C) from a lease or pro-
19       duction unit, whose production results from a tertiary recovery
20       process. "Tertiary recovery process" means the process or proc-
21       esses described in subparagraphs (1) through (9) of 10 C.F.R.
22       212.78(c) as in effect on June 1, 1979; (D) from a lease or produc-
23       tion unit, the producing well or wells upon which have a comple-
24       tion depth of less than 2,000 feet and whose average daily pro-
25       duction resulting from a water flood process, is six barrels or less
26       per producing well, which well or wells have not been significantly
27       curtailed by reason of mechanical failure or other disruption of
28       production; (E) from a lease or production unit, the producing well
29       or wells upon which have a completion depth of 2,000 feet or more,
30       and whose average daily production resulting from a water flood
31       process, is seven barrels or less per producing well or, if the price
32       of oil as determined pursuant to subsection (d) is $16 or less, whose
33       average daily production is eight barrels or less per producing
34       well, or, if the price of oil as determined pursuant to subsection
35       (d) is $15 or less, whose average daily production is nine barrels
36       or less per producing well, or, if the price of oil as determined
37       pursuant to subsection (d) is $14 or less, whose average daily pro-
38       duction is 10 barrels or less per producing well, which well or wells
39       have not been significantly curtailed by reason of mechanical fail-
40       ure or other disruption of production; (F) test, frac or swab oil
41       which is sold or exchanged for value; or (G) inadvertently lost on
42       the lease or production unit by reason of leaks or other accidental
43       means;

HB 2543--Am. by HCW

28

  1             (3)  (A) any taxpayer applying for an exemption pursuant to
  2       subsection (b)(2)(A) and (B) shall make application annually to the
  3       director of taxation therefor. Exemptions granted pursuant to sub-
  4       section (b)(2)(A) and (B) shall be valid for a period of one year
  5       following the date of certification thereof by the director of taxa-
  6       tion; (B) any taxpayer applying for an exemption pursuant to sub-
  7       section (b)(2)(D) or (E) shall make application annually to the di-
  8       rector of taxation therefor. Such application shall be accompanied
  9       by proof of the approval of an application for the utilization of a
10       water flood process therefor by the corporation commission pur-
11       suant to rules and regulations adopted under the authority of
12       K.S.A. 55-152 and amendments thereto and proof that the oil pro-
13       duced therefrom is kept in a separate tank battery and that sepa-
14       rate books and records are maintained therefor. Such exemption
15       shall be valid for a period of one year following the date of certi-
16       fication thereof by the director of taxation; and (C) notwithstand-
17       ing the provisions of paragraph (A) or (B), any exemption in effect
18       on the effective date of this act affected by the amendments to
19       subsection (b)(2) by this act shall be redetermined in accordance
20       with such amendments. Any such exemption, and any new exemp-
21       tion established by such amendments and applied for after the
22       effective date of this shall be valid for a period commencing with
23       May 1, 1998, and ending on April 30, 1999.
24             (4) the severance and production of gas or oil from any pool
25       from which oil or gas was first produced on or after April 1, 1983,
26       as determined by the state corporation commission and certified
27       to the director of taxation, and continuing for a period of 24
28       months from the month in which oil or gas was first produced from
29       such pool as evidenced by an affidavit of completion of a well, filed
30       with the state corporation commission and certified to the director
31       of taxation. Exemptions granted for production from any well pur-
32       suant to this paragraph shall be valid for a period of 24 months
33       following the month in which oil or gas was first produced from
34       such pool. The term "pool" means an underground accumulation
35       of oil or gas in a single and separate natural reservoir character-
36       ized by a single pressure system so that production from one part
37       of the pool affects the reservoir pressure throughout its extent;
38             (5) the severance and production of oil or gas from a three-
39       year inactive well, as determined by the state corporation com-
40       mission and certified to the director of taxation, for a period of 10
41       years after the date of receipt of such certification. As used in this
42       paragraph, "three-year inactive well" means any well that has not
43       produced oil or gas in more than one month in the three years

HB 2543--Am. by HCW

29

  1       prior to the date of application to the state corporation commission
  2       for certification as a three-year inactive well. An application for
  3       certification as a three-year inactive well shall be in such form and
  4       contain such information as required by the state corporation com-
  5       mission, and shall be made prior to July 1, 1996. The commission
  6       may revoke a certification if information indicates that a certified
  7       well was not a three-year inactive well or if other lease production
  8       is credited to the certified well. Upon notice to the operator that
  9       the certification for a well has been revoked, the exemption shall
10       not be applied to the production from that well from the date of
11       revocation;
12             (6)  (A) The incremental severance and production of oil or gas
13       which results from a production enhancement project begun on
14       or after July 1, 1998, shall be exempt for a period of seven years
15       from the startup date of such project. As used in this paragraph
16       (6):
17             (1) "Incremental severance and production" means the
18       amount of oil or natural gas which is produced as the result of a
19       production enhancement project which is in excess of the base
20       production of oil or natural gas, and is determined by subtracting
21       the base production from the total monthly production after the
22       production enhancement projects is completed.
23             (2) "Base production" means the average monthly amount of
24       production for the twelve-month period immediately prior to the
25       production enhancement project beginning date, minus the
26       monthly rate of production decline for the well or project for each
27       month beginning 180 days prior to the project beginning date. The
28       monthly rate of production decline shall be equal to the average
29       extrapolated monthly decline rate for the well or project for the
30       twelve-month period immediately prior to the production en-
31       hancement project beginning date. Such monthly rate of produc-
32       tion decline shall be continued as the decline that would have oc-
33       curred except for the enhancement project. The calculation of the
34       base production amount shall be evidenced by an affidavit and
35       supporting documentation filed by the applying taxpayer with the
36       state corporation commission.
37             (3) "Workover" means any downhole operation in an existing
38       oil or gas well that is designed to sustain, restore or increase the
39       production rate or ultimate recovery of oil or gas, including but
40       not limited to acidizing, reperforation, fracture treatment, sand/
41       paraffin/scale removal or other wellbore cleanouts, casing repair,
42       squeeze cementing, initial installation, or enhancement of artifi-
43       cial lifts including plunger lifts, rods, pumps, submersible pumps

HB 2543--Am. by HCW

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  1       and coiled tubing velocity strings, downsizing existing tubing to
  2       reduce well loading, downhole commingling, bacteria treatments,
  3       polymer treatments, upgrading the size of pumping unit equip-
  4       ment, setting bridge plugs to isolate water production zones, or
  5       any combination of the aforementioned operations; "workover"
  6       shall not mean the routine maintenance, routine repair, or like for-
  7       like replacement of downhole equipment such as rods, pumps, tub-
  8       ing packers or other mechanical device.
  9             (4) "Production enhancement project" means performing or
10       causing to be performed the following:
11             (i) Workover;
12             (ii) recompletion to a different producing zone in the same well
13       bore, except recompletions in formations and zones subject to a
14       state corporation commission proration order;
15             (iii) secondary recovery projects;
16             (iv) addition of mechanical devices to dewater a gas or oil well;
17             (v) replacement or enhancement of surface equipment;
18             (vi) installation or enhancement of compression equipment,
19       line looping or other techniques or equipment which increases
20       production from a well or a group of wells in a project;
21             (vii) new discoveries of oil or gas which are discovered as a
22       result of the use of new technology, including, but not limited to,
23       three dimensional seismic studies.
24             (B) The state corporation commission shall adopt rules and
25       regulations necessary to efficiently and properly administer the
26       provisions of this paragraph (6) including rules and regulations for
27       the qualification of production enhancement projects, the proce-
28       dures for determining the monthly rate of production decline, cri-
29       teria for determining the share of incremental production attrib-
30       utable to each well when a production enhancement project
31       includes a group of wells, criteria for determining the start up date
32       for any project for which an exemption is claimed, and determin-
33       ing new qualifying technologies for the purposes of paragraph
34       (6)(A)(4)(vii).
35             (C) Any taxpayer applying for an exemption pursuant to this
36       paragraph (6) shall make application to the director of taxation.
37       Such application shall be accompanied by a state corporation com-
38       mission certification that the production for which an exemption
39       is sought results from a qualified production enhancement project
40       and certification of the base production for the enhanced wells or
41       group of wells, and the rate of decline to be applied to that base
42       production. The secretary of revenue shall provide credit for any
43       taxes paid between the project startup date and the certification

HB 2543--Am. by HCW

31

  1       of qualifications by the commission.
  2             (D) The exemptions provided for in this paragraph (6) shall not
  3       apply for 12 months beginning July 1 of the year subsequent to
  4       any calendar year during which: (1) In the case of oil, the secretary
  5       of revenue determines that the weighted average price of Kansas
  6       oil at the wellhead has exceeded $20.00 per barrel; or (2) in the
  7       case of natural gas the secretary of revenue determines that the
  8       weighted average price of Kansas gas at the wellhead has exceeded
  9       $2.50 per Mcf.
10             (E) The provisions of this paragraph (6) shall not affect any
11       other exemption allowable pursuant to this section; and
12             (7) the severance and production of oil occurring on and after July 1,
13       1999; and
14             (7) (8) for the calendar year 1988, and any year thereafter, the
15       severance or production of the first 350,000 tons of coal from any
16       mine as certified by the state geological survey.
17             (c) No exemption shall be granted pursuant to subsection (b)(3)
18       or (4) to any person who does not have a valid operator's license
19       issued by the state corporation commission, and no refund of tax
20       shall be made to any taxpayer attributable to any production in a
21       period when such taxpayer did not hold a valid operator's license
22       issued by the state corporation commission.
23             (d) On April 15, 1988, and on April 15 of each year thereafter,
24       the secretary of revenue shall determine from statistics compiled
25       and provided by the United States department of energy, the av-
26       erage price per barrel paid by the first purchaser of crude oil in
27       this state for the six-month period ending on December 31 of the
28       preceding year. Such price shall be used for the purpose of deter-
29       mining exemptions allowed by subsection (b)(2)(B) or (E) for the
30       twelve-month period commencing on May 1 of such year and end-
31       ing on April 30 of the next succeeding year.
32        Sec.  7. On and after July 1, 1999, K.S.A. 1998 Supp. 79-3602
33       and 79-3606 are hereby repealed.
34             Sec.  8. K.S.A. 1998 Supp. 79-201w, 79-32,206 and 79-4217 are
35       hereby repealed.
36        Sec.  2. Sec.  9. This act shall take effect and be in force from and
37       after its publication in the Kansas register.