March 10, 1998


Journal of the Senate


FORTIETH DAY
______
Senate Chamber Topeka, Kansas 
Tuesday, March 10, 1998--2:30 p.m. 
 The Senate was called to order by President Dick Bond.

 The roll was called with thirty-nine senators present.

 Senator Hensley was excused.

 Invocation by Chaplain Fred S. Hollomon:

 Heavenly Father,

 Our fourth President, James Madison, once said, ``If people lack sufficient virtue . . . for
self-government, nothing less than the chains of despotism can restrain them from destroy-
ing and devouring one another.''

 For the sake of our country and our state, O God, help us to be more concerned with
our virtue than our virility,

 with our character than our charisma,

 with our integrity than our intellect,

 with our credibility than our visibility,

 with principle than with price tags,

 with our determination than our limitations,

 with our legacy than our pedigree,

 with our common sense than our eloquence.

 And most of all, O God, help us to be more concerned about pleasing You than pleasing
anyone else.

 I pray in Jesus' Name,

 AMEN

CHANGE OF REFERENCE
 The President withdrew SB 598, 615 from the Committee on Commerce, and rereferred
the bills to the Committee on Judiciary.

MESSAGE FROM THE GOVERNOR
OFFICE OF THE GOVERNOR
March 4, 1998
Message to the Senate of the State of Kansas:
 Enclosed herewith is Executive Directive No. 98-267 for your information.

                                                                                    Sincerely,

                                                                                    Bill Graves

                                                                                    Governor

 The President announced Executive Directive No. 98-267, Authorizing a Personnel
Transaction, is on file in the office of the Secretary of the Senate and available for review
at any time.

COMMUNICATIONS FROM STATE OFFICERS
STATE OF KANSAS
Office of the Chief Information Architect
March 5, 1998
 Frederick E. Boesch, Chief Information Architect, submitted the Annual Report Sum-
mary of Agency Information Technology Management and Budget Plans for Fiscal Year
1999.

 The President announced the above report is on file in the office of the Secretary of the
Senate and available for review at any time.

MESSAGE FROM THE HOUSE
 Announcing passage of HB 2510, 2684.

 Also, adoption of SCR 1616.

INTRODUCTION OF HOUSE BILLS AND CONCURRENT RESOLUTIONS
 HB 2510, 2684 were thereupon introduced and read by title.

REPORTS OF STANDING COMMITTEES
 Committee on Assessment and Taxation recommends SB 541 be amended on page
1, in line 15, by striking all after the first ``owns''; in line 16, by striking all before ``file'' and
inserting ``, capitalizes or utilizes an affiliate with one of the affiliate's purposes being to
make, hold or manage for, or on behalf of, the taxpayer, investments in securities which the
taxpayer would be permitted to make for its own account may be required to''; in line 17,
after ``returns'' by inserting ``or combined reports''; in line 18, by striking ``sub-''; in line 19,
by striking ``sidiary'' and inserting ``affiliate''; in line 20, after ``return'' by inserting ``or com-
bined report''; in line 25, by striking ``a subsidiary'' and inserting ``an affiliate''; in line 28,
by striking ``subsidiary'' and inserting ``affiliate''; in line 30, by striking ``a subsidiary'' and
inserting ``an affiliate''; in line 31, after ``return'' by inserting ``or combined report''; in line
35, before ``may'' by inserting ``combined reporting and'' and the bill be passed as amended.

 Also HB 2249, as amended by House Committee of the Whole, be amended on page 1,
by striking all in lines 21 through 43;

    By striking all on pages 2 through 12, and by inserting the following:

    ``New Section 1. (a) A tax is hereby imposed on the estate of every resident decedent,
and every nonresident decedent who died holding an interest in property with a Kansas tax
situs, whose estate is required by federal law to file a return for federal state taxes. The
amount of such tax shall be equal to the amount of the maximum credit allowed by section
2011 of the internal revenue code against the tax that would otherwise be imposed on the
transfer of the estate of the decedent by section 2001 of the internal revenue code.

    (b) When the estate of a resident decedent shall consist of property within and without
the state, or in the case of the estate of a nonresident decedent who died holding an interest
in property with a Kansas tax situs, the tax imposed under subsection (a) shall be the per-
centage thereof that the gross estate for federal estate tax purposes less the value of all
property included therein having a tax situs which is not within the jurisdiction of the state
of Kansas, bears to the total gross estate for federal estate tax purposes.

    Sec. 2. K.S.A. 79-1541a is hereby amended to read as follows: 79-1541a. Whenever the
amount of the tax imposed upon a generation-skipping transfer by section 2601 of the
internal revenue code is determined, a tax, equal to the maximum amount of the credit
allowed against such tax by section 2604 of the internal revenue code, is hereby imposed
upon the taxable estate of the decedent as of the date of such determination. The tax imposed
under the provisions of this act shall be chargeable against the interests of each beneficiary
in proportion to the share received by each beneficiary under such transfer.

    Sec. 3. K.S.A. 79-1541b is hereby amended to read as follows: 79-1541b. When the
property transferred subject to the tax imposed by K.S.A. 79-1541a shall consist of both
property within and property without the state, the tax imposed shall be the percentage that
the Kansas assets of the generation-skipping trust or generation-skipping trust equivalent
bears to the total assets of the generation-skipping trust or generation-skipping trust equiv-
alent.

    Sec. 4. K.S.A. 79-1542 is hereby amended to read as follows: 79-1542. As used in this
act unless the context otherwise requires:

    (a) Any term used in this act shall have the same meaning as when used in a comparable
context in the internal revenue code. Any reference in this act to the ``internal revenue code''
shall mean the provisions of the United States internal revenue code of 1986, as such code
exists on December 31, 1992 1997. Any reference in this act to a specific provision of the
internal revenue code shall be to such provision as it exists on December 31, 1992 1997.

    (b) ``Deemed executor'' includes any person in actual or constructive possession of any
property of the decedent.

    (c) ``Director'' means the director of taxation.

    (d) ``Distributee'' means a beneficiary, legatee, devisee, heir, next of kin, grantee, donee,
vendee, joint tenant or any other successor in interest, whether outright or in trust.
    (e) ``Distributive share'' or ``distributive shares'' means the share or shares of the dis-
tributive estate passing to a distributee or distributees.

    (f) (d) ``Domicile'' refers to that place where a person resides, has an intention to remain
and to which they intend to return following any absence.

    (g) (e) ``Estate'' and ``property'' shall mean the real, personal and mixed property or
interest therein of the testator, intestate, grantor, bargainor, vendor or donor which shall
pass or be transferred to legatees, devisees, heirs, next of kin, grantees, donees, vendees, or
successors and shall include all personal property within or without the state.

    (h) (f) ``Executor'' and ``administrator'' mean the duly appointed, qualified and acting
executor or administrator of the decedent in this state.

    (i) (g) ``Nonresident decedent'' means a decedent who was not a resident decedent at
the time of death.

    (j) (h) ``Personal representative'' means the executor, administrator or deemed executor
of the decedent.

    (k) (i) ``Resident decedent'' means a decedent who was domiciled in this state at the
time of death.

    (l) (j) ``Secretary'' means the secretary of revenue, or the secretary's designee.

    (m) (k) ``Tax'' includes tax, penalty and interest, unless the context of a particular section
otherwise requires.

    (n) (l) ``Transfer'' shall include the passing of property or any interest therein in pos-
session or enjoyment, present or future, by inheritance, descent, devise, succession, bequest,
grant, deed, bargain, sale, gift or appointment in the manner herein prescribed.

    Sec. 5. K.S.A. 79-1564 is hereby amended to read as follows: 79-1564. (a) Except as
hereinafter provided, the executor or administrator of the estate of every decedent whose
death gives rise to a tax liability under the provisions of this act, within nine months following
the death of the decedent, shall make and The personal representative of every estate subject
to the tax imposed by section 1 who is required by federal law to file a return for federal
estate taxes shall file in the office of the director a return on forms prepared and furnished
by the secretary together with a copy of the federal estate tax return on or before the date
the federal estate tax return is required to be filed.

    (b) In those estates in which no executor or administrator has been appointed, the
deemed executor shall make and file such return. In the event there is more than one
deemed executor, all deemed executors shall be jointly responsible for completing and filing
one return reporting all of the assets of the estate except as hereinafter provided.
    (c) If, after exercising due diligence, the personal representative making and filing such
return is unable to make a complete return as to any part of the gross estate of the decedent,
such personal representative shall make and file a return reporting all information as to the
estate assets, including a description thereof and the name of any person holding a legal or
beneficial interest in the assets to the best of such personal representative's knowledge.

    (d) (b) The taxes imposed under the provisions of this act shall be paid at the expiration
of nine months after the death of the decedent. Such taxes shall be payable from the assets
of the estate or proceeds therefrom, in order, so far as practicable, that each distributive
share of the estate shall bear a just and equitable proportion of such taxes unless otherwise
directed by the will of the decedent or trust agreement by the personal representative to
the director not later than the date of the filing of the return.

    (1) The executor or administrator of the estate of every decedent who is required to file
a return shall pay to the director all taxes imposed under this act. In the event the tax
imposed against the shares of the decedent's estate exceeds the value of the assets or the
proceeds therefrom which were in the custody or control of the executor or administrator,
the executor or administrator shall pay the tax imposed to the extent of the value of the
amount or the proceeds therefrom within such executor's or administrator's custody or
control and the balance of the taxes may be stayed upon application to and approval by the
director. Such application shall be made at the time the return is filed upon forms prescribed
by the secretary. Upon approval of such application payment of the taxes shall be stayed for
a period not to exceed one year and the executor or administrator shall have a right to
proceed against the individual distributee or distributees receiving such taxable shares and
may perfect a lien therefor under the provisions of K.S.A. 79-1569, and amendments thereto.
    (2) Except as hereinafter provided, the deemed executor or deemed executors of the
estate of every decedent who are required to file a return shall pay to the director all of the
taxes imposed by this act. To the extent that all deemed executors do not join in the filing
of the return, the deemed executors who jointly file shall pay only that portion of the taxes
representing the aggregate tax liability imposed upon the distributive shares of those so
filing.
    (3) Where an asset not within the custody or control of a personal representative gives
rise to a tax liability and such personal representative is required to pay such tax or has
voluntarily paid such tax from the assets within such personal representative's custody or
control, the personal representative shall have a right to proceed against the individual
distributee receiving such share and may perfect a lien therefor under the provisions of
K.S.A. 79-1569, and amendments thereto. For the purpose of this paragraph: (1) With
respect to the tax liability caused without consideration of K.S.A. 79-1539 or 79-1540, and
amendments thereto, the personal representative shall be entitled to recover from the dis-
tributee the amount by which the total tax liability of the decedent's estate resulting from
such assets outside the control of the personal representative and received by the distributee
exceeds the total tax liability which would have been payable if the value of such property
had not been included in the decedent's gross estate; and (2) with respect to any additional
tax liability resulting from the application of K.S.A. 79-1539 or 79-1540, and amendments
thereto, the personal representative shall be entitled to recover from the distributee that
portion of the total tax liability caused by such application equal to the ratio that the value
of such assets outside the control of the personal representative received by the distributee
bears to the total value of such assets outside the control of the personal representative.
    (4) Whenever the personal representative is required to pay the taxes imposed upon an
asset not within the personal representative's custody or control and pays the taxes imposed
thereon from assets or proceeds therefrom of the estate within the personal representative's
custody or control and thereafter fails to collect the taxes attributable to the distributive
shares of the decedent's estate which were not within the personal representative's custody
or control, the personal representative shall be entitled to a refund of the taxes attributable
to such shares which were paid from assets or proceeds therefrom within the personal
representative's custody or control upon application to the director. The application for
refund shall be filed on forms prescribed by the secretary within the time allowed for refunds
pursuant to K.S.A. 79-1574, and amendments thereto. Upon being satisfied that the personal
representative has exercised due diligence in attempting to recover the taxes attributable to
the distributive shares of the decedent's estate which were not within such personal rep-
resentative's custody or control, the director shall refund the same.
    (5) The director shall issue a receipt acknowledging payment of such taxes whenever
the taxes as shown to be due on the return or any additional taxes assessed by the director
have been paid by a personal representative and (A) such executor or administrator has
requested a cash receipt in order to be subrogated to the state's right to proceed in collecting
the tax against a distributee; or (B) such executor or administrator has received a stay of
payment from the director. Such a receipt shall be issued only under circumstances de-
scribed in clauses (A) or (B) of this subsection and shall not constitute evidence that a final
determination of taxes pursuant to K.S.A. 79-1571, and amendments thereto, has been
made.

    (e) (c) If the taxes contemplated by this act are not paid when due, interest at the rate
prescribed by K.S.A. 79-2968(b), and amendments thereto, shall be charged and collected
commencing at the time the same become payable. When the filing of the return is delayed
beyond nine months after the death of the decedent and the director finds that such delay
was due to the inability of the personal representative to determine the distributive shares
of an estate or the proper recipients thereof, or to litigation, interest shall commence at the
time the return is filed.

    (f) At the election of the personal representative, the taxes imposed by this act may be
determined by the director. Such election shall be made by filing a return disclosing all
information necessary for the determination of the taxes imposed by this act. Upon receipt
of all necessary information, the director shall determine the taxes due and owing and shall
notify the personal representative of the tax liability by registered or certified mail. Not-
withstanding any election made pursuant to this section, the taxes shall be due and payable
at the same time and in the same manner as if the taxes had been determined by the personal
representative. If the election pursuant to this subsection is made before the expiration of
the nine-month period after the death of the decedent, interest shall be charged and col-
lected commencing 10 days after notice of the tax liability has been received by the personal
representative, or at the expiration of the nine-month period after the decedent's death,
whichever is later. If the election pursuant to this subsection is not timely made and the
director shall find that the delay was not due to the circumstances set forth in subsection
(e), interest shall be charged and collected commencing at the expiration of the nine-month
period after the decedent's death.

    Sec. 6. K.S.A. 79-1569 is hereby amended to read as follows: 79-1569. (a) Subject to
the provisions of subsection (b), Property of which a decedent died seized or possessed,
subject to the taxes imposed by this act, in whatever form of investment it may happen to
be shall be charged with a lien for all taxes, penalty and interest thereon which are or may
become due on such property; but the lien shall not affect any property after it has been
sold or disposed of for value by the executors or administrators in accordance with law, and
no consent to transfer issued by the director shall be required to release such lien, but in
all such cases a lien shall attach to the proceeds realized from any such sale or other dis-
position for all taxes and interest thereon which are or may be due on such property. That
portion of the decedent's property which is used for the payment of charges against the
estate and expenses of its administration, allowed by any court having jurisdiction thereof,
shall be divested of such lien. The lien on any property subject to the inheritance tax act by
virtue of the provisions of this subsection shall be divested after 10 years from the date of
the decedent's death.

    (b) If the taxes imposed under this act are not paid when due, the spouse, transferee,
surviving tenant, person in possession of the property by reason of the exercise, nonexercise,
or release of a power of appointment, or beneficiary, who receives, or has on the date of
the decedent's death, property included in the gross estate under K.S.A. 79-1548 through
79-1553 and 79-1555 through 79-1557, and amendments thereto, to the extent of the value
of such property at the time of the decedent's death shall be personally liable for such tax.
Any part of such property transferred by, or transferred by a transferee of, such spouse,
transferee, trustee, surviving tenant, person in possession, or beneficiary to a purchaser or
holder of a security interest shall be divested of the lien provided for in subsection (a) and
a similar lien shall then attach to all the property of such spouse, transferee, trustee, surviving
tenant, person in possession, beneficiary or transferee of any such person, except any part
transferred to a purchaser or a holder of a security interest.

    (c) Upon issuance of a receipt for taxes paid pursuant to subsection (d)(5) of K.S.A. 79-
1564 and amendments thereto to a personal representative who has paid the taxes imposed
by this act or an approved application for stay filed pursuant to subsection (d)(1) of K.S.A.
79-1564 and amendments thereto, the personal representative shall be subrogated to the
right to proceed against any real or personal property in which a distributee has an interest
which the state might have had. The issuance of a receipt for taxes paid by the director after
payment of the taxes or approved application for stay shall be deemed an assignment by the
state to the personal representative of the right to proceed against the real and personal
property in which a distributee has an interest and shall be conclusive evidence thereof. A
right to proceed shall arise and a lien shall be perfected to aid the personal representative
in the right to proceed against property of a distributee only if the personal representative
files a notice of lien with the register of deeds. The lien shall be effective only against
property of a distributee located in the county where the notice of lien is filed. Such notice
of lien may be filed in any county wherein any real or personal property in which the
distributee has an interest is located. The notice of lien shall be made on forms prescribed
by the secretary. Upon satisfaction of the lien, a release shall be issued by such personal
representative on forms prescribed by the secretary.
    (d) If the personal representative has requested and received a refund of taxes paid
pursuant to subsection (d)(4) of K.S.A. 79-1564, and amendments thereto, or whenever the
personal representative fails to collect the tax pursuant to subsection (d)(4) of K.S.A. 79-
1564, and amendments thereto, or is not required to pay the tax imposed by this act or the
taxes imposed by this act are not paid at the expiration of nine months after the death of
the decedent,

    (b) If the personal representative fails to timely pay the tax imposed by section 1, the
director shall enforce the director's lien by the issuance of a warrant under the director's
hand and official seal, directed to the sheriff of any county of the state, commanding such
sheriff to levy upon and sell the real and personal property of the distributee estate found
within the sheriff's county for the payment of the amount thereof, with the added interest
and the cost of executing the warrant, and to return such warrant to the director and pay
to the director the money collected by virtue thereof not more than 60 days from the date
of the warrant. The sheriff shall within five days after the receipt of the warrant, file with
the clerk of the district court of the sheriff's county a copy thereof, and thereupon the clerk
shall enter in the appearance docket in appropriate columns, the name of the distributee
estate named in the warrant, the amount of the tax or portion thereof and interest for which
the warrant is issued and the date such copy is filed. The amount of such warrant so docketed
shall thereupon become a lien upon the title to, and interest in, the real property of the
distributee estate against whom it is issued in the same manner, as a judgment duly docketed
in the office of such clerk. The sheriff shall proceed in the same manner and with like effect
as prescribed by law with respect to executions issued against property upon judgments of
a court of record, and shall be entitled to the same fees for the sheriff's services to be
collected in the same manner.

    The court in which the warrant is docketed shall have jurisdiction over all subsequent
proceedings as fully as though a judgment had been rendered in the court. In the discretion
of the director, a warrant of like terms, force and effect may be issued and directed to any
officer or employee of the director, and in the execution thereof such officer or employee
shall have all the powers conferred by laws upon sheriffs, and the subsequent proceedings
thereunder shall be the same as provided where the warrant is issued directly to the sheriff.
The distributee estate shall have the right to redeem the real estate within a period of 18
months from the date of such sale. If a warrant be returned, unsatisfied in full, the director
shall have the same remedies to enforce the claim for taxes as if the state of Kansas had
recovered judgment against the distributee for the amount of the tax. No law exempting
any goods and chattels, land and tenements from forced sale under execution shall apply to
a levy and sale under any such warrants or upon any execution issued upon any judgment
rendered in any action for inheritance taxes. The director shall have the right at any time
after the warrant has been returned unsatisfied or satisfied only in part, to issue alias warrants
until the full amount of the tax is collected.

    Sec. 7. K.S.A. 79-1570 is hereby amended to read as follows: 79-1570. No final account
of a personal representative shall be allowed by the district court unless such account shows,
and the judge of such court finds, that all taxes imposed by the provisions of this act upon
any property or interest therein belonging to the estate to be settled by such account and
already payable have been paid, and that all taxes which may become due on such estate
have been paid or settled as hereinbefore provided, or that the payment thereof to the state
is secured by bond.

    Sec. 8. K.S.A. 79-1571 is hereby amended to read as follows: 79-1571. (a) As soon as
practicable after the return is filed and the taxes paid, the director shall issue a closing letter.
Such closing letter shall be issued upon the director being satisfied that there has been a
final determination of all taxes due and that all such taxes have been paid. The director shall
issue such closing letter to the personal representative, and when the estate is involved in
probate proceedings before a district court, a copy of such closing letter shall be forwarded
to the judge of such court for recording in full in the journal of such court.

    (b) In the event that all deemed executors do not join in the filing of a return, or in the
event the personal representative is unable to make a complete return as to any part of the
gross estate of the decedent, upon the director being satisfied that a final determination of
the taxes due on that portion of the estate reported has been made and all taxes due thereon
have been paid, the director shall issue a closing letter as to that portion of the gross estate
which has actually been reported.
    (c) The closing letter shall be applicable only to assets reported in the return filed with
the director. To the extent the gross assets of the decedent were reported, the issuance of
a closing letter shall be conclusive evidence that all taxes have been determined and paid
and shall release any lien which attached to the decedent's property and that of any deemed
executor or distributee unless such lien has been subrogated, assigned and perfected pur-
suant to K.S.A. 79-1569, and amendments thereto. The closing letter may contain a legal
description of the real property so reported.
    (d) Release of the lien imposed by K.S.A. 79-1569, and amendments thereto, may be
provided by filing notice of release in the office of the register of deeds in any county where
any such real property included in the gross estate is located or, when the estate is involved
in proceedings before the district court, with the court. Any such notice of release shall be
in such form as prescribed by the secretary and may include use of or reference to the
closing letter issued by the director or may be included as part of that closing letter.

    Sec. 9. K.S.A. 79-1572 is hereby amended to read as follows: 79-1572. (a) Assets be-
longing to the estate of a deceased nonresident, other than intangible assets of a decedent
who at the time of death resided in the United States but outside this state, shall not be
delivered or transferred to a foreign personal representative of such decedent without serv-
ing notice upon the director of taxation of the time and place of such intended delivery or
transfer at least seven days before the time of such delivery or transfer. The director or the
director's representative may examine such assets prior to the time of such delivery or
transfer. Failure to serve such notice or to allow such examination or the making of a delivery
or transfer of such assets against the objection of the director shall render the person,
association, or corporation making the delivery or transfer liable for the payment of the tax
and interest due upon such assets, in an action brought by the department of revenue in
the name of the state.

    (b) A foreign or Kansas person, corporation, partnership or other association of persons
may release or transfer intangible assets of a nonresident decedent upon receipt of a sworn
affidavit from the personal representative of the decedent's estate, stating that the decedent
was not a resident of the state of Kansas at the time of the decedent's death but that such
decedent was a resident of another state in the United States.

    Sec. 10. K.S.A. 79-1574 is hereby amended to read as follows: 79-1574. (a) Except as
otherwise provided in this section, the amount of any tax imposed by this act shall be assessed
within three years after the return or affidavit was filed, whether or not such return was
filed on or after the date prescribed, or the tax as shown to be due on such return was paid,
whichever is the later date, and no proceedings in court for the collection of such taxes shall
be begun after the expiration of such period. Where the assessment of any inheritance tax
imposed under this act has been made within the period of limitation properly applicable
thereto, such tax may be collected by distraint or by a proceeding in court, but only if begun
within one year after the period of limitation as provided in this act. The foregoing provisions
of this section shall not apply in those cases where the time for the payment of the tax has
been extended pursuant to K.S.A. 79-1544 or 79-1567, and amendments thereto. In those
cases where the director has retained jurisdiction over the estate pursuant to K.S.A. 79-
1544, and amendments thereto, assessment of taxes or proceedings to collect taxes must be
made or commenced within three years after notice of the death of the life tenant. In those
cases where a bond has been given guaranteeing the payment of the tax pursuant to K.S.A.
79-1567, and amendments thereto, assessment of taxes or proceedings for collection of the
tax must be made or commenced within three years after the date of the expiration of the
last bond so given.

    (b) For the purposes of this section, a return of tax required under this act filed before
the last day prescribed by law shall be deemed to be filed on such last day and any tax shown
to be due on such return and paid before the last day prescribed by law shall be deemed
to be paid on such last day.

    (c) In the case of a false or fraudulent return or affidavit with intent to evade tax or in
the case of failure to file a return, the tax may be assessed, or a proceeding in court for
collection of such tax may be begun at any time. If the personal representative omits from
the gross estate items includable in such gross estate as exceed 25% of the gross estate stated
in the return or affidavit, the tax may be assessed or a proceeding in court for collection of
such tax may be begun at any time within six years after the return or affidavit was filed. In
determining the items omitted from the gross estate, there shall not be taken into account
any item which is omitted from the gross estate if such item is disclosed in the return or
affidavit, or in a statement attached to the return or affidavit, in a manner adequate to
apprise the director of the nature and amount of such item.

    (d) No refund or credit shall be allowed by the director after three years from the date
the return was filed, or one year after an assessment is made, whichever is the later date,
unless before the expiration of such period a claim therefor is filed by the personal repre-
sentative.

    (e) In case a personal representative has made claim for a refund, such personal rep-
resentative shall have the right to commence a suit for the recovery of the same at the
expiration of six months after the filing of the claim for refund, if no action has been taken
by the director.

    (f) Any personal representative of an estate of a decedent who has been notified of any
adjustment by the internal revenue service shall notify the director within 90 days of the
date such adjustment is agreed to or becomes final between the estate and the internal
revenue service. Such adjustments shall be reported by filing an amended return and a copy
of the revenue agent's report detailing such adjustments, along with any other statements
or documents as may be necessary to explain and support the adjustments.:

    (1) Notwithstanding the provisions of subsections (a) or (d), additional tax may be as-
sessed and proceedings in court for collection of such taxes may be commenced and any
refund or credit may be allowed by the director of taxation within 180 days following receipt
of any such report of adjustments by the Kansas department of revenue. No assessment
shall be made nor shall any refund or credit be allowed under the provisions of this paragraph
except to the extent the same is attributable to changes in the estate due to adjustments
indicated by such report.

    (2) In the event of failure to comply with the provisions of this subsection, the statute
of limitations shall be tolled.

    Sec. 11. K.S.A. 79-1575 is hereby amended to read as follows: 79-1575. As soon as
practicable after the return or affidavit is filed, the director shall make an examination
thereof and shall issue final determinations of tax liability hereunder in the manner pre-
scribed by K.S.A. 79-3226, and amendments thereto. If the tax found due is less than the
amount paid, the excess paid shall be refunded to the personal representative who paid the
tax, except that no refund of $25 or less shall be made. If the tax found due shall be greater
than the amount previously paid, or if a claim for a refund is denied, notice shall be mailed
to the person filing the return by registered or certified mail. An order finding additional
tax shall be accompanied by a notice and demand for payment. The tax shall be paid within
30 days thereafter, together with interest on the additional tax from the date the tax was
due unless an appeal is taken in the manner provided by K.S.A. 74-2438, and amendments
thereto. No additional tax shall be assessed for less than $25.

    Sec. 12. K.S.A. 79-1576 is hereby amended to read as follows: 79-1576. Subject to the
right of any personal representative to apply for review as provided for in this act, the director
shall hear and determine all questions relative to such tax. The attorney for the director, at
the request of the director, shall represent the state in any court proceedings brought to
review any action of the director. If any district court shall find that any such tax remains
due and that proper proceedings have not been taken before the director for abatement
thereof, it shall order the personal representative to pay the same, with interest, and costs,
and no question regarding the validity of such tax shall be heard in such court. If it appears
that there are no goods or assets of the estate in the personal representative's hands, the
court may assess the amount of the tax against the personal representative, as if for the
personal representative's own debt, and may enforce compliance with such order; but the
personal representatives shall be personally liable only for such taxes as shall be payable
while they continue in such offices or have custody or control of decedent's property. In
the cases where the tax is due and payable by and collectible from the distributee, all actions
shall be prosecuted by the attorney for the director in the name of the state, and such actions
may be brought in the same courts as other actions for money.

    Sec. 13. K.S.A. 79-1579 is hereby amended to read as follows: 79-1579. A refund clear-
ing fund, designated inheritance estate tax abatement refund, not to exceed $50,000 shall
be set apart and maintained by the director of taxation from inheritance estate tax collections
and held by the state treasurer for the prompt payment of all abatements and refunds. If
the director of taxation finds that a claim for refund duly filed by a personal representative
pursuant to K.S.A. 79-1564(d)(4), 79-1574(d) or 79-1575, and amendments thereto, should
be allowed, or if a court upon a final judgment shall find that the inheritance estate tax,
penalty or interest paid by a personal representative is in excess of the amount legally due,
then the director of taxation shall issue the director's vouchers to the director of accounts
and reports for the refund to the personal representative of such tax, penalty or interest
together with interest provided for hereinafter. Upon receipt of such voucher properly
executed and endorsed, the director of accounts and reports shall issue the director's war-
rants to the state treasurer for the payment to the personal representative out of the inher-
itance estate tax abatement refund fund. The director of taxation shall file a duplicate of
such voucher and also a statement which shall set forth the reasons why such abatement or
refund was allowed. Upon the allowance of an abatement or refund of any tax or interest
paid, interest shall be allowed and paid on the amount of such abatement or refund at the
rate of 12% per annum from the date such tax, penalty or interest was paid to the date the
refund or abatement of inheritance estate taxes is made. No refunds in an amount of less
than $25 shall be made.

    Sec. 14. K.S.A. 79-1580 is hereby amended to read as follows: 79-1580. (a) The director
of taxation shall fix and charge an amount pursuant to K.S.A. 45-218 and 45-219, and amend-
ments thereto for furnishing certified copies of returns or affidavits.

    (b) All fees collected hereunder shall be remitted to the state treasurer at least monthly.
Upon receipt of each such remittance, the state treasurer shall deposit the entire amount
thereof in the state treasury and the same shall be credited to the state general fund.

    Sec. 15. K.S.A. 79-1587 is hereby amended to read as follows: 79-1587. (a) All reports
and returns required under the provisions of the Kansas inheritance estate tax act shall be
preserved for three years and thereafter until the director of taxation orders them to be
destroyed.

    (b) Except in accordance with proper judicial order, or as provided in subsection (c) of
this section, subsection (g) of K.S.A. 17-7511, and amendments thereto, or 46-1106, and
amendments thereto, it shall be unlawful for the director of taxation, or any deputy, agent,
clerk or other officer, employee or former employee of the department of revenue or any
other state officer or employee or former state officer or employee to divulge, or to make
known in any way, the value of any estate or any particulars set forth or disclosed in any
report, return, federal return or federal return information required under the provisions
of the Kansas inheritance estate tax act; and it shall be unlawful for the director of taxation,
any deputy, agent, clerk or other officer or employee of the department of revenue engaged
in the administration of the Kansas inheritance estate tax act to engage in the business or
profession of tax accounting or to accept employment, with or without consideration, from
any person, firm or corporation for the purpose, directly or indirectly, of preparing tax
returns or reports required by the laws of the state of Kansas, by any other state or by the
United States government, or to accept any employment for the purpose of advising, pre-
paring material or data, or the auditing of books or records to be used in an effort to defeat
or cancel any tax or part thereof that has been assessed by the state of Kansas, any other
state or by the United States government.

    (c) Nothing herein shall be construed to prohibit the publication of statistics, so clas-
sified as to prevent the identification of particular reports or returns and the items thereof,
or the inspection of returns by the attorney general or other legal representatives of the
state. Nothing in this section shall prohibit the post auditor from access to all inheritance
estate tax reports or returns in accordance with and subject to the provisions of subsection
(g) of K.S.A. 46-1106, and amendments thereto. Nothing in this section shall be construed
to prohibit the disclosure of the taxpayer's name, social security number, last known address
and total tax liability, including penalty and interest, from inheritance estate tax returns to
a debt collection agency contracting with the secretary of revenue pursuant to K.S.A. 75-
5140 to 75-5143, inclusive, and amendments thereto. Any person receiving any information
under the provisions of this subsection shall be subject to the confidentiality provisions of
subsection (b) of this section and to the penalty provisions of subsection (d) of this section.

    (d) Any violation of subsections (b) or (c) of this section shall be a class B misdemeanor;
and if the offender be an officer or employee of the state, such officer or employee shall be
dismissed from office.

    (e) Notwithstanding the provisions of this section, the secretary of revenue may permit
the commissioner of internal revenue of the United States, or the proper official of any state
imposing an inheritance or estate tax, or the authorized representative of either, to inspect
the inheritance estate tax returns made under the provisions of the Kansas inheritance estate
tax act and the secretary of revenue may make available or furnish to the taxing officials of
any other state or the commissioner of internal revenue of the United States or other taxing
officials of the federal government, or their authorized representatives, information con-
tained in inheritance tax reports or returns or any audit thereof or the report of any inves-
tigation made with respect thereto, filed pursuant to the Kansas inheritance estate tax act,
as the secretary may consider proper, but such information shall not be used for any other
purpose than that of the administration of tax laws of such state, the state of Kansas or of
the United States.

    (f) Notwithstanding the provisions of this section, the inheritance estate tax return filed
with respect to the estate of a decedent shall, upon written request, be open to inspection
by or disclosure to: (1) The administrator, executor or trustee of such decedent's estate,;
and (2) any heir at law, next of kin or beneficiary under the will of such decedent or a donee
or distributee of the decedent's property, but only if the secretary of revenue finds that such
heir at law, next of kin, beneficiary, donee or distributee has a material interest which will
be affected by information contained therein.

    New Sec. 16. Sections 1 through 17 of this act and the provisions of article 15 of chapter
79 of the Kansas Statutes Annotated not repealed by this act shall be known and may be
cited as the Kansas estate tax act.

    New Sec. 17. The provisions of sections 1 through 17 of this act shall be applicable to
the estates of all decedents dying after June 30, 1998. The provisions of article 15 of chapter
79 of the Kansas Statutes Annotated in effect immediately before the effective date of this
act shall be applicable to the estates of all decedents dying before July 1, 1998.

    Sec. 18. K.S.A. 79-32,110 is hereby amended to read as follows: 79-32,110. (a) Resident
Individuals. Except as otherwise provided by subsection (a) of K.S.A. 79-3220, and amend-
ments thereto, a tax is hereby imposed upon the Kansas taxable income of every resident
individual, which tax shall be computed in accordance with the following tax schedules:

    (1) Married individuals filing joint returns.

If the taxable income is:The tax is:
Not over $30,000 3.5% of Kansas taxable income
Over $30,000 but not over $60,000 $1,050 plus 6.25% of excess over $30,000
Over $60,000 $2,925 plus 6.45% of excess over $60,000
    (2) All other individuals.

 (A) For tax year 1997:

If the taxable income is:The tax is:
Not over $20,000 4.1% of Kansas taxable income
Over $20,000 but not over $30,000 $820 plus 7.5% of excess over $20,000
Over $30,000 $1,570 plus 7.75% of excess over $30,000
 (B) For tax year 1998, and all tax years thereafter:

If the taxable income is:The tax is:
Not over $15,000 3.5% of Kansas taxable income
Over $15,000 but not over $30,000 $525 plus 6.75% of excess over $15,000
Over $30,000 $1,537.50 plus 7.75% of excess over $30,000
 (C) For tax year 1999:
If the taxable income is:The tax is:
Not over $15,000 3.5% of Kansas taxable income
Over $15,000 but not over $30,000 $525 plus 6.25% of excess over $15,000
Over $30,000 $1,462.50 plus 7.45% of excess over $30,000
 (D) For tax year 2000, and all tax years thereafter:

If the taxable income is:The tax is:
Not over $15,000 3.5% of Kansas taxable income
Over $15,000 but not over $30,000 $525 plus 6.25% of excess over $15,000
Over $30,000 $1,462.50 plus 6.45% of excess over $30,000
    (b) Nonresident Individuals. A tax is hereby imposed upon the Kansas taxable income
of every nonresident individual, which tax shall be an amount equal to the tax computed
under subsection (a) as if the nonresident were a resident multiplied by the ratio of modified
Kansas source income to Kansas adjusted gross income.

    (c) Corporations. A tax is hereby imposed upon the Kansas taxable income of every
corporation doing business within this state or deriving income from sources within this
state. Such tax shall consist of a normal tax and a surtax and shall be computed as follows:

    (1) The normal tax shall be in an amount equal to 4% of the Kansas taxable income of
such corporation; and

    (2) the surtax shall be in an amount equal to 3.35% of the Kansas taxable income of
such corporation in excess of $50,000.

    (d) Fiduciaries. A tax is hereby imposed upon the Kansas taxable income of estates and
trusts at the rates provided in paragraph (2) of subsection (a) hereof.

    Sec. 19. K.S.A. 79-32,119 is hereby amended to read as follows: 79-32,119. The Kansas
standard deduction of an individual, including a husband and wife who are either both
residents or who file a joint return as if both were residents, shall be equal to the sum of
the standard deduction amount allowed pursuant to this section, and the additional standard
deduction amount allowed pursuant to this section for each such deduction allowable to
such individual or to such husband and wife under the federal internal revenue code as in
effect for tax year 1988. For tax year 1998, and all tax years thereafter, the standard de-
duction amount shall be as follows: Single individual filing status, $3,200; married filing
status, $5,600; and head of household filing status, $4,800. For tax year 1998, and all tax
years thereafter, the additional standard deduction amount shall be as follows: Single indi-
vidual and head of household filing status, $850; and married filing status, $700. For pur-
poses of the foregoing, the federal standard deduction allowable to a husband and wife filing
separate Kansas income tax returns shall be determined on the basis that separate federal
returns were filed, and the federal standard deduction of a husband and wife filing a joint
Kansas income tax return shall be determined on the basis that a joint federal income tax
return was filed.

    Sec. 20. K.S.A. 79-32,121 is hereby amended to read as follows: 79-32,121. (a) An
individual shall be allowed a Kansas exemption of $1,950 for tax year 1988, and $2,000 for
each tax year thereafter $2,300 for tax year 1998, and all tax years thereafter for each
exemption for which such individual is entitled to a deduction for the taxable year for federal
income tax purposes. In addition to the exemptions authorized in the foregoing provision,
an individual filing a federal income tax return under the status of head of household, as
the same is defined by 26 U.S.C. 2(b), shall be allowed an additional Kansas exemption of
$1,950 for tax year 1988, and $2,000 for each tax year thereafter $2,300 for tax year 1998,
and all tax years thereafter.

    (b) For tax year 1987, there shall be allowed as a credit against the tax liability of a
resident individual imposed under the Kansas income tax act who except for the operation
of the provisions of K.S.A. 79-32,121 resulting from amendments to the federal internal
revenue code would have been allowed an additional exemption for blindness or age or both
pursuant to such section in tax year 1987, an amount equal to $60 for each such exemption.
The total amount of such credits shall not exceed the amount of tax imposed by K.S.A.
79-32,110, and amendments thereto, reduced by the sum of any other credits allowable
pursuant to law.

    New Sec. 21. For all taxable years commencing after December 31, 1997, there shall
be allowed as a credit against the tax liability of a taxpayer imposed under the Kansas income
tax act, the premiums tax upon insurance companies imposed pursuant to K.S.A. 40-252,
and amendments thereto, and the privilege tax as measured by net income of financial
institutions imposed pursuant to article 11 of chapter 79 of the Kansas Statutes Annotated,
an amount equal to 15% of the property tax levied for property tax year 1998, and all such
years thereafter, actually and timely paid during an income or privilege taxable year upon
commercial and industrial machinery and equipment classified for property taxation pur-
poses pursuant to section 1 of article 11 of the Kansas constitution in subclass (5) or (6) of
class 2 and machinery and equipment classified for such purposes in subclass (2) of class 2.
If the amount of such tax credit exceeds the taxpayer's income tax liability for the taxable
year, the amount thereof which exceeds such tax liability shall be refunded to the taxpayer.
If the taxpayer is a corporation having an election in effect under subchapter S of the federal
internal revenue code, a partnership or a limited liability company, the credit provided by
this section shall be claimed by the shareholders of such corporation, the partners of such
partnership or the members of such limited liability company in the same manner as such
shareholders, partners or members account for their proportionate shares of the income or
loss of the corporation, partnership or limited liability company.

    Sec. 22. K.S.A. 1997 Supp. 72-6431 is hereby amended to read as follows: 72-6431. (a)
The board of each district shall levy an ad valorem tax upon the taxable tangible property
of the district in the school years specified in subsection (b) for the purpose of:

    (1) Financing that portion of the district's general fund budget which is not financed
from any other source provided by law;

    (2) paying a portion of the costs of operating and maintaining public schools in partial
fulfillment of the constitutional obligation of the legislature to finance the educational in-
terests of the state; and

    (3) with respect to any redevelopment district established prior to July 1, 1997, pursuant
to K.S.A. 12-1771, and amendments thereto, paying a portion of the principal and interest
on bonds issued by cities under authority of K.S.A. 12-1774, and amendments thereto, for
the financing of redevelopment projects upon property located within the district.

    (b) The tax required under subsection (a) shall be levied at a rate of 27 23 mills in the
1997-98 school year and in the 1998-99 school year and in the 1999-2000 school year.

    (c) The proceeds from the tax levied by a district under authority of this section, except
the proceeds of such tax levied for the purpose of paying a portion of the principal and
interest on bonds issued by cities under authority of K.S.A. 12-1774, and amendments
thereto, for the financing of redevelopment projects upon property located within the dis-
trict, shall be deposited in the general fund of the district.

    (d) On June 1 of each year, the amount, if any, by which a district's local effort exceeds
the amount of the district's state financial aid, as determined by the state board, shall be
remitted to the state treasurer. Upon receipt of any such remittance, the state treasurer
shall deposit the same in the state treasury to the credit of the state school district finance
fund.

    (e) No district shall proceed under K.S.A. 79-1964, 79-1964a or 79-1964b, and amend-
ments to such sections.

    Sec. 23. K.S.A. 79-201x is hereby amended to read as follows: 79-201x. For taxable
years 1997 and 1998 and 1999, the following described property, to the extent herein spec-
ified, shall be and is hereby exempt from the property tax levied pursuant to the provisions
of K.S.A. 1997 Supp. 72-6431, and amendments thereto: Property used for residential pur-
poses to the extent of $20,000 of its appraised valuation.

    Sec. 24. K.S.A. 79-201t is hereby amended to read as follows: 79-201t. The following
described property, to the extent herein specified, shall be and is hereby exempt from all
property or ad valorem taxes levied under the laws of the state of Kansas:

    (a) All oil leases, other than royalty interests therein, the average daily production from
which is two three barrels or less per producing well, or three five barrels or less per pro-
ducing well which has a completion depth of 2,000 feet or more.

    (b) The provisions of this section shall apply to all taxable years commencing after
December 31, 1991 1997.

    Sec. 25. K.S.A. 79-4217 is hereby amended to read as follows: 79-4217. (a) There is
hereby imposed an excise tax upon the severance and production of coal, oil or gas from
the earth or water in this state for sale, transport, storage, profit or commercial use, subject
to the following provisions of this section. Such tax shall be borne ratably by all persons
within the term ``producer'' as such term is defined in K.S.A. 79-4216, and amendments
thereto, in proportion to their respective beneficial interest in the coal, oil or gas severed.
Such tax shall be applied equally to all portions of the gross value of each barrel of oil
severed and subject to such tax and to the gross value of the gas severed and subject to such
tax. The rate of such tax shall be 8% of the gross value of all oil or gas severed from the
earth or water in this state and subject to the tax imposed under this act. The rate of such
tax with respect to coal shall be $1 per ton. For the purposes of the tax imposed hereunder
the amount of oil or gas produced shall be measured or determined: (1) In the case of oil,
by tank tables compiled to show 100% of the full capacity of tanks without deduction for
overage or losses in handling; allowance for any reasonable and bona fide deduction for
basic sediment and water, and for correction of temperature to 60 degrees Fahrenheit will
be allowed; and if the amount of oil severed has been measured or determined by tank
tables compiled to show less than 100% of the full capacity of tanks, such amount shall be
raised to a basis of 100% for the purpose of the tax imposed by this act; and (2) in the case
of gas, by meter readings showing 100% of the full volume expressed in cubic feet at a
standard base and flowing temperature of 60 degrees Fahrenheit, and at the absolute pres-
sure at which the gas is sold and purchased; correction to be made for pressure according
to Boyle's law, and used for specific gravity according to the gravity at which the gas is sold
and purchased, or if not so specified, according to the test made by the balance method.

    (b) The following shall be exempt from the tax imposed under this section:

    (1) The severance and production of gas which is: (A) Injected into the earth for the
purpose of lifting oil, recycling or repressuring; (B) used for fuel in connection with the
operation and development for, or production of, oil or gas in the lease or production unit
where severed; (C) lawfully vented or flared; (D) severed from a well having an average
daily production during a calendar month having a gross value of not more than $81 per
day, which well has not been significantly curtailed by reason of mechanical failure or other
disruption of production; in the event that the production of gas from more than one well
is gauged by a common meter, eligibility for exemption hereunder shall be determined by
computing the gross value of the average daily combined production from all such wells and
dividing the same by the number of wells gauged by such meter; (E) inadvertently lost on
the lease or production unit by reason of leaks, blowouts or other accidental losses; (F) used
or consumed for domestic or agricultural purposes on the lease or production unit from
which it is severed; or (G) placed in underground storage for recovery at a later date and
which was either originally severed outside of the state of Kansas, or as to which the tax
levied pursuant to this act has been paid;

    (2) the severance and production of oil which is: (A) From a lease or production unit
whose average daily production is two five barrels or less per producing well, which well or
wells have not been significantly curtailed by reason of mechanical failure or other disruption
of production; (B) from a lease or production unit, the producing well or wells upon which
have a completion depth of 2,000 feet or more, and whose average daily production is three
six barrels or less per producing well or, if the price of oil as determined pursuant to
subsection (d) is $30 $16 or less, whose average daily production is four seven barrels or
less per producing well, or, if the price of oil as determined pursuant to subsection (d) is
$24 $15 or less, whose average daily production is five eight barrels or less per producing
well, or, if the price of oil as determined pursuant to subsection (d) is $16 $14 or less, whose
average daily production is six nine barrels or less per producing well, or, if the price of oil
as determined pursuant to subsection (d) is $10 $13 or less, whose average daily production
is seven 10 barrels or less per producing well, which well or wells have not been significantly
curtailed by reason of mechanical failure or other disruption of production; (C) from a lease
or production unit, whose production results from a tertiary recovery process. ``Tertiary
recovery process'' means the process or processes described in subparagraphs (1) through
(9) of 10 C.F.R. 212.78(c) as in effect on June 1, 1979; (D) from a lease or production unit,
the producing well or wells upon which have a completion depth of less than 2,000 feet and
whose average daily production resulting from a water flood process, is three six barrels or
less per producing well, which well or wells have not been significantly curtailed by reason
of mechanical failure or other disruption of production; (E) from a lease or production unit,
the producing well or wells upon which have a completion depth of 2,000 feet or more, and
whose average daily production resulting from a water flood process, is four seven barrels
or less per producing well or, if the price of oil as determined pursuant to subsection (d) is
$30 $16 or less, whose average daily production is five eight barrels or less per producing
well, or, if the price of oil as determined pursuant to subsection (d) is $24 $15 or less, whose
average daily production is six nine barrels or less per producing well, or, if the price of oil
as determined pursuant to subsection (d) is $16 $14 or less, whose average daily production
is seven 10 barrels or less per producing well, or, if the price of oil as determined pursuant
to subsection (d) is $10 or less, whose average daily production is eight barrels or less per
producing well, which well or wells have not been significantly curtailed by reason of me-
chanical failure or other disruption of production; (F) test, frac or swab oil which is sold or
exchanged for value; or (G) inadvertently lost on the lease or production unit by reason of
leaks or other accidental means;

    (3) (A) any taxpayer applying for an exemption pursuant to subsection (b)(2)(A) and
(B) shall make application annually to the director of taxation therefor. Exemptions granted
pursuant to subsection (b)(2)(A) and (B) shall be valid for a period of one year following
the date of certification thereof by the director of taxation; (B) any taxpayer applying for an
exemption pursuant to subsection (b)(2)(D) or (E) shall make application annually to the
director of taxation therefor. Such application shall be accompanied by proof of the approval
of an application for the utilization of a water flood process therefor by the corporation
commission pursuant to rules and regulations adopted under the authority of K.S.A. 55-152
and amendments thereto and proof that the oil produced therefrom is kept in a separate
tank battery and that separate books and records are maintained therefor. Such exemption
shall be valid for a period of one year following the date of certification thereof by the
director of taxation; and (C) notwithstanding the provisions of paragraph (A) or (B), any
exemption in effect on the effective date of this act affected by the amendments to subsection
(b)(2) by this act shall be redetermined in accordance with such amendments. Any such
exemption, and any new exemption established by such amendments and applied for after
the effective date of this shall be valid for a period commencing with May 1, 1998, and
ending on April 30, 1999.

    (4) the severance and production of gas or oil from any pool from which oil or gas was
first produced on or after April 1, 1983, as determined by the state corporation commission
and certified to the director of taxation, and continuing for a period of 24 months from the
month in which oil or gas was first produced from such pool as evidenced by an affidavit of
completion of a well, filed with the state corporation commission and certified to the director
of taxation. Exemptions granted for production from any well pursuant to this paragraph
shall be valid for a period of 24 months following the month in which oil or gas was first
produced from such pool. The term ``pool'' means an underground accumulation of oil or
gas in a single and separate natural reservoir characterized by a single pressure system so
that production from one part of the pool affects the reservoir pressure throughout its extent;

    (5) the severance and production of oil or gas from a three-year inactive well, as deter-
mined by the state corporation commission and certified to the director of taxation, for a
period of 10 years after the date of receipt of such certification. As used in this paragraph,
``three-year inactive well'' means any well that has not produced oil or gas in more than one
month in the three years prior to the date of application to the state corporation commission
for certification as a three-year inactive well. An application for certification as a three-year
inactive well shall be in such form and contain such information as required by the state
corporation commission, and shall be made prior to July 1, 1996. The commission may
revoke a certification if information indicates that a certified well was not a three-year
inactive well or if other lease production is credited to the certified well. Upon notice to
the operator that the certification for a well has been revoked, the exemption shall not be
applied to the production from that well from the date of revocation; and

    (6) for the calendar year 1988, and any year thereafter, the severance or production of
the first 350,000 tons of coal from any mine as certified by the state geological survey.

    (c) No exemption shall be granted pursuant to subsection (b)(3) or (4) to any person
who does not have a valid operator's license issued by the state corporation commission,
and no refund of tax shall be made to any taxpayer attributable to any production in a period
when such taxpayer did not hold a valid operator's license issued by the state corporation
commission.

    (d) On April 15, 1988, and on April 15 of each year thereafter, the secretary of revenue
shall determine from statistics compiled and provided by the United States department of
energy, the average price per barrel paid by the first purchaser of crude oil in this state for
the six-month period ending on December 31 of the preceding year. Such price shall be
used for the purpose of determining exemptions allowed by subsection (b)(2)(B) or (E) for
the twelve-month period commencing on May 1 of such year and ending on April 30 of the
next succeeding year.

    Sec. 26. K.S.A. 79-3603 is hereby amended to read as follows: 79-3603. For the privi-
lege of engaging in the business of selling tangible personal property at retail in this state
or rendering or furnishing any of the services taxable under this act, there is hereby levied
and there shall be collected and paid a tax at the rate of 4.9% upon:

    (a) The gross receipts received from the sale of tangible personal property at retail
within this state;

    (b) (1) the gross receipts from intrastate telephone or telegraph services and (2) the
gross receipts received from the sale of interstate telephone or telegraph services, which
(A) originate within this state and terminate outside the state and are billed to a customer's
telephone number or account in this state; or (B) originate outside this state and terminate
within this state and are billed to a customer's telephone number or account in this state
except that the sale of interstate telephone or telegraph service does not include: (A) Any
interstate incoming or outgoing wide area telephone service or wide area transmission type
service which entitles the subscriber to make or receive an unlimited number of commu-
nications to or from persons having telephone service in a specified area which is outside
the state in which the station provided this service is located; (B) any interstate private
communications service to the persons contracting for the receipt of that service that entitles
the purchaser to exclusive or priority use of a communications channel or group of channels
between exchanges; (C) any value-added nonvoice service in which computer processing
applications are used to act on the form, content, code or protocol of the information to be
transmitted; (D) any telecommunication service to a provider of telecommunication services
which will be used to render telecommunications services, including carrier access services;
or (E) any service or transaction defined in this section among entities classified as members
of an affiliated group as provided by federal law (U.S.C. Section 1504);

    (c) the gross receipts from the sale or furnishing of gas, water, electricity and heat,
which sale is not otherwise exempt from taxation under the provisions of this act, and
whether furnished by municipally or privately owned utilities;

    (d) the gross receipts from the sale of meals or drinks furnished at any private club,
drinking establishment, catered event, restaurant, eating house, dining car, hotel, drugstore
or other place where meals or drinks are regularly sold to the public;

    (e) the gross receipts from the sale of admissions to any place providing amusement,
entertainment or recreation services including admissions to state, county, district and local
fairs, but such tax shall not be levied and collected upon the gross receipts received from
sales of admissions to any cultural and historical event which occurs triennially;

    (f) the gross receipts from the operation of any coin-operated device dispensing or
providing tangible personal property, amusement or other services except laundry services,
whether automatic or manually operated;

    (g) the gross receipts from the service of renting of rooms by hotels, as defined by K.S.A.
36-501 and amendments thereto, or by accommodation brokers, as defined by K.S.A. 12-
1692, and amendments thereto;

    (h) the gross receipts from the service of renting or leasing of tangible personal property
except such tax shall not apply to the renting or leasing of machinery, equipment or other
personal property owned by a city and purchased from the proceeds of industrial revenue
bonds issued prior to July 1, 1973, in accordance with the provisions of K.S.A. 12-1740
through 12-1749, and amendments thereto, and any city or lessee renting or leasing such
machinery, equipment or other personal property purchased with the proceeds of such
bonds who shall have paid a tax under the provisions of this section upon sales made prior
to July 1, 1973, shall be entitled to a refund from the sales tax refund fund of all taxes paid
thereon;

    (i) the gross receipts from the rendering of dry cleaning, pressing, dyeing and laundry
services except laundry services rendered through a coin-operated device whether automatic
or manually operated;

    (j) the gross receipts from the rendering of the services of washing and washing and
waxing of vehicles;

    (k) the gross receipts from cable, community antennae and other subscriber radio and
television services;

    (l) the gross receipts received from the sales of tangible personal property to all con-
tractors, subcontractors or repairmen of materials and supplies for use by them in erecting
structures for others, or building on, or otherwise improving, altering, or repairing real or
personal property of others;

    (m) the gross receipts received from fees and charges by public and private clubs, drink-
ing establishments, organizations and businesses for participation in sports, games and other
recreational activities, but such tax shall not be levied and collected upon the gross receipts
received from: (1) Fees and charges by any political subdivision, or any youth recreation
organization exclusively providing services to persons 18 years of age or younger which is
exempt from federal income taxation pursuant to section 501(c)(3) of the federal internal
revenue code of 1986, for participation in sports, games and other recreational activities;
and (2) entry fees and charges for participation in a special event or tournament sanctioned
by a national sporting association to which spectators are charged an admission which is
taxable pursuant to subsection (e);

    (n) the gross receipts received from dues charged by public and private clubs, drinking
establishments, organizations and businesses, payment of which entitles a member to the
use of facilities for recreation or entertainment;

    (o) the gross receipts received from the isolated or occasional sale of motor vehicles or
trailers but not including: (1) The transfer of motor vehicles or trailers by a person to a
corporation solely in exchange for stock securities in such corporation; or (2) the transfer
of motor vehicles or trailers by one corporation to another when all of the assets of such
corporation are transferred to such other corporation; or (3) the sale of motor vehicles or
trailers which are subject to taxation pursuant to the provisions of K.S.A. 79-5101 et seq.,
and amendments thereto, by an immediate family member to another immediate family
member. For the purposes of clause (3), immediate family member means lineal ascendants
or descendants, and their spouses. In determining the base for computing the tax on such
isolated or occasional sale, the fair market value of any motor vehicle or trailer traded in by
the purchaser to the seller may be deducted from the selling price;

    (p) the gross receipts received for the service of installing or applying tangible personal
property which when installed or applied is not being held for sale in the regular course of
business, and whether or not such tangible personal property when installed or applied
remains tangible personal property or becomes a part of real estate, except that no tax shall
be imposed upon the service of installing or applying tangible personal property in connec-
tion with the original construction of a building or facility, the original construction, recon-
struction, restoration, remodeling, renovation, repair or replacement of a residence or the
construction, reconstruction, restoration, replacement or repair of a bridge or highway.

    For the purposes of this subsection:

    (1) ``Original construction'' shall mean the first or initial construction of a new building
or facility. The term ``original construction'' shall include the addition of an entire room or
floor to any existing building or facility, the completion of any unfinished portion of any
existing building or facility and the restoration, reconstruction or replacement of a building
or facility damaged or destroyed by fire, flood, tornado, lightning, explosion or earthquake,
but such term, except with regard to a residence shall not include replacement, remodeling,
restoration, renovation or reconstruction under any other circumstances;

    (2) ``building'' shall mean only those enclosures within which individuals customarily
live or are employed, or which are customarily used to house machinery, equipment or other
property, and including the land improvements immediately surrounding such building; and

    (3) ``facility'' shall mean a mill, plant, refinery, oil or gas well, water well, feedlot or any
conveyance, transmission or distribution line of any cooperative, nonprofit, membership
corporation organized under or subject to the provisions of K.S.A. 17-4601 et seq., and
amendments thereto, or of any municipal or quasi-municipal corporation, including the land
improvements immediately surrounding such facility; and
    (4) ``residence'' shall mean only those enclosures within which individuals customarily
live;

    (q) the gross receipts received for the service of repairing, servicing, altering or main-
taining tangible personal property, except computer software described in subsection (s),
which when such services are rendered is not being held for sale in the regular course of
business, and whether or not any tangible personal property is transferred in connection
therewith. The tax imposed by this subsection shall be applicable to the services of repairing,
servicing, altering or maintaining an item of tangible personal property which has been and
is fastened to, connected with or built into real property;

    (r) the gross receipts from fees or charges made under service or maintenance agree-
ment contracts for services, charges for the providing of which are taxable under the pro-
visions of subsection (p) or (q);

    (s) the gross receipts received from the sale of computer software, and the sale of the
services of modifying, altering, updating or maintaining computer software. As used in this
subsection, ``computer software'' means information and directions loaded into a computer
which dictate different functions to be performed by the computer. Computer software
includes any canned or prewritten program which is held or existing for general or repeated
sale, even if the program was originally developed for a single end user as custom computer
software. The sale of computer software or services does not include: (1) The initial sale of
any custom computer program which is originally developed for the exclusive use of a single
end user; or (2) those services rendered in the modification of computer software when the
modification is developed exclusively for a single end user only to the extent of the modi-
fication and only to the extent that the actual amount charged for the modification is sep-
arately stated on invoices, statements and other billing documents provided to the end user.
The services of modification, alteration, updating and maintenance of computer software
shall only include the modification, alteration, updating and maintenance of computer soft-
ware taxable under this subsection whether or not the services are actually provided; and

    (t) the gross receipts received for telephone answering services, including mobile phone
services, beeper services and other similar services.

    Sec. 27. K.S.A. 79-3606, as amended by section 27 of 1998 Senate Bill No. 373, is
hereby amended to read as follows: 79-3606. The following shall be exempt from the tax
imposed by this act:

    (a) All sales of motor-vehicle fuel or other articles upon which a sales or excise tax has
been paid, not subject to refund, under the laws of this state except cigarettes as defined
by K.S.A. 79-3301 and amendments thereto, cereal malt beverages and malt products as
defined by K.S.A. 79-3817 and amendments thereto, including wort, liquid malt, malt syrup
and malt extract, which is not subject to taxation under the provisions of K.S.A. 79-41a02
and amendments thereto, and motor vehicles as defined by K.S.A. 79-1017 taxed pursuant
to K.S.A. 79-5117, and amendments thereto, tires taxed pursuant to K.S.A. 1997 Supp.
65-3424d, and amendments thereto, and drycleaning and laundry services taxed pursuant
to K.S.A. 1997 Supp. 65-34,150, and amendments thereto;

    (b) all sales of tangible personal property or service, including the renting and leasing
of tangible personal property, purchased directly by the state of Kansas, a political subdi-
vision thereof, other than a school or educational institution, or purchased by a public or
private nonprofit hospital or public hospital authority or nonprofit blood, tissue or organ
bank and used exclusively for state, political subdivision, hospital or public hospital authority
or nonprofit blood, tissue or organ bank purposes, except when: (1) Such state, hospital or
public hospital authority is engaged or proposes to engage in any business specifically taxable
under the provisions of this act and such items of tangible personal property or service are
used or proposed to be used in such business, or (2) such political subdivision is engaged
or proposes to engage in the business of furnishing gas, water, electricity or heat to others
and such items of personal property or service are used or proposed to be used in such
business;

    (c) all sales of tangible personal property or services, including the renting and leasing
of tangible personal property, purchased directly by a public or private elementary or sec-
ondary school or public or private nonprofit educational institution and used primarily by
such school or institution for nonsectarian programs and activities provided or sponsored
by such school or institution or in the erection, repair or enlargement of buildings to be
used for such purposes. The exemption herein provided shall not apply to erection, con-
struction, repair, enlargement or equipment of buildings used primarily for human habita-
tion;

    (d) all sales of tangible personal property or services purchased by a contractor for the
purpose of constructing, equipping, reconstructing, maintaining, repairing, enlarging, fur-
nishing or remodeling facilities for any public or private nonprofit hospital or public hospital
authority, public or private elementary or secondary school or a public or private nonprofit
educational institution, which would be exempt from taxation under the provisions of this
act if purchased directly by such hospital or public hospital authority, school or educational
institution; and all sales of tangible personal property or services purchased by a contractor
for the purpose of constructing, equipping, reconstructing, maintaining, repairing, enlarging,
furnishing or remodeling facilities for any political subdivision of the state, the total cost of
which is paid from funds of such political subdivision and which would be exempt from
taxation under the provisions of this act if purchased directly by such political subdivision.
Nothing in this subsection or in the provisions of K.S.A. 12-3418 and amendments thereto,
shall be deemed to exempt the purchase of any construction machinery, equipment or tools
used in the constructing, equipping, reconstructing, maintaining, repairing, enlarging, fur-
nishing or remodeling facilities for any political subdivision of the state. As used in this
subsection, K.S.A. 12-3418 and 79-3640, and amendments thereto, ``funds of a political
subdivision'' shall mean general tax revenues, the proceeds of any bonds and gifts or grants-
in-aid. Gifts shall not mean funds used for the purpose of constructing, equipping, recon-
structing, repairing, enlarging, furnishing or remodeling facilities which are to be leased to
the donor. When any political subdivision of the state, public or private nonprofit hospital
or public hospital authority, public or private elementary or secondary school or public or
private nonprofit educational institution shall contract for the purpose of constructing,
equipping, reconstructing, maintaining, repairing, enlarging, furnishing or remodeling fa-
cilities, it shall obtain from the state and furnish to the contractor an exemption certificate
for the project involved, and the contractor may purchase materials for incorporation in
such project. The contractor shall furnish the number of such certificate to all suppliers
from whom such purchases are made, and such suppliers shall execute invoices covering
the same bearing the number of such certificate. Upon completion of the project the con-
tractor shall furnish to the political subdivision, hospital or public hospital authority, school
or educational institution concerned a sworn statement, on a form to be provided by the
director of taxation, that all purchases so made were entitled to exemption under this sub-
section. As an alternative to the foregoing procedure, any such contracting entity may apply
to the secretary of revenue for agent status for the sole purpose of issuing and furnishing
project exemption certificates to contractors pursuant to rules and regulations adopted by
the secretary establishing conditions and standards for the granting and maintaining of such
status. All invoices shall be held by the contractor for a period of five years and shall be
subject to audit by the director of taxation. If any materials purchased under such a certif-
icate are found not to have been incorporated in the building or other project or not to have
been returned for credit or the sales or compensating tax otherwise imposed upon such
materials which will not be so incorporated in the building or other project reported and
paid by such contractor to the director of taxation not later than the 20th day of the month
following the close of the month in which it shall be determined that such materials will not
be used for the purpose for which such certificate was issued, the political subdivision,
hospital or public hospital authority, school or educational institution concerned shall be
liable for tax on all materials purchased for the project, and upon payment thereof it may
recover the same from the contractor together with reasonable attorney fees. Any contractor
or any agent, employee or subcontractor thereof, who shall use or otherwise dispose of any
materials purchased under such a certificate for any purpose other than that for which such
a certificate is issued without the payment of the sales or compensating tax otherwise im-
posed upon such materials, shall be guilty of a misdemeanor and, upon conviction therefor,
shall be subject to the penalties provided for in subsection (g) of K.S.A. 79-3615, and amend-
ments thereto;

    (e) all sales of tangible personal property or services purchased by a contractor for the
erection, repair or enlargement of buildings or other projects for the government of the
United States, its agencies or instrumentalities, which would be exempt from taxation if
purchased directly by the government of the United States, its agencies or instrumentalities.
When the government of the United States, its agencies or instrumentalities shall contract
for the erection, repair, or enlargement of any building or other project, it shall obtain from
the state and furnish to the contractor an exemption certificate for the project involved, and
the contractor may purchase materials for incorporation in such project. The contractor
shall furnish the number of such certificates to all suppliers from whom such purchases are
made, and such suppliers shall execute invoices covering the same bearing the number of
such certificate. Upon completion of the project the contractor shall furnish to the govern-
ment of the United States, its agencies or instrumentalities concerned a sworn statement,
on a form to be provided by the director of taxation, that all purchases so made were entitled
to exemption under this subsection. As an alternative to the foregoing procedure, any such
contracting entity may apply to the secretary of revenue for agent status for the sole purpose
of issuing and furnishing project exemption certificates to contractors pursuant to rules and
regulations adopted by the secretary establishing conditions and standards for the granting
and maintaining of such status. All invoices shall be held by the contractor for a period of
five years and shall be subject to audit by the director of taxation. Any contractor or any
agent, employee or subcontractor thereof, who shall use or otherwise dispose of any ma-
terials purchased under such a certificate for any purpose other than that for which such a
certificate is issued without the payment of the sales or compensating tax otherwise imposed
upon such materials, shall be guilty of a misdemeanor and, upon conviction therefor, shall
be subject to the penalties provided for in subsection (g) of K.S.A. 79-3615 and amendments
thereto;

    (f) tangible personal property purchased by a railroad or public utility for consumption
or movement directly and immediately in interstate commerce;

    (g) sales of aircraft including remanufactured and modified aircraft, sales of aircraft
repair, modification and replacement parts and sales of services employed in the remanu-
facture, modification and repair of aircraft sold to persons using such aircraft and aircraft
repair, modification and replacement parts as certified or licensed carriers of persons or
property in interstate or foreign commerce under authority of the laws of the United States
or any foreign government or sold to any foreign government or agency or instrumentality
of such foreign government and all sales of aircraft, aircraft parts, replacement parts and
services employed in the remanufacture, modification and repair of aircraft for use outside
of the United States;

    (h) all rentals of nonsectarian textbooks by public or private elementary or secondary
schools;

    (i) the lease or rental of all films, records, tapes, or any type of sound or picture tran-
scriptions used by motion picture exhibitors;

    (j) meals served without charge or food used in the preparation of such meals to em-
ployees of any restaurant, eating house, dining car, hotel, drugstore or other place where
meals or drinks are regularly sold to the public if such employees' duties are related to the
furnishing or sale of such meals or drinks;

    (k) any motor vehicle, semitrailer or pole trailer, as such terms are defined by K.S.A.
8-126 and amendments thereto, or aircraft sold and delivered in this state to a bona fide
resident of another state, which motor vehicle, semitrailer, pole trailer or aircraft is not to
be registered or based in this state and which vehicle, semitrailer, pole trailer or aircraft will
not remain in this state more than 10 days;

    (l) all isolated or occasional sales of tangible personal property, services, substances or
things, except isolated or occasional sale of motor vehicles specifically taxed under the pro-
visions of subsection (o) of K.S.A. 79-3603 and amendments thereto;

    (m) all sales of tangible personal property which become an ingredient or component
part of tangible personal property or services produced, manufactured or compounded for
ultimate sale at retail within or without the state of Kansas; and any such producer, manu-
facturer or compounder may obtain from the director of taxation and furnish to the supplier
an exemption certificate number for tangible personal property for use as an ingredient or
component part of the property or services produced, manufactured or compounded;

    (n) all sales of tangible personal property which is consumed in the production, man-
ufacture, processing, mining, drilling, refining or compounding of tangible personal prop-
erty, the treating of by-products or wastes derived from any such production process, the
providing of services or the irrigation of crops for ultimate sale at retail within or without
the state of Kansas; and any purchaser of such property may obtain from the director of
taxation and furnish to the supplier an exemption certificate number for tangible personal
property for consumption in such production, manufacture, processing, mining, drilling,
refining, compounding, treating, irrigation and in providing such services;

    (o) all sales of animals, fowl and aquatic plants and animals, the primary purpose of
which is use in agriculture or aquaculture, as defined in K.S.A. 47-1901, and amendments
thereto, the production of food for human consumption, the production of animal, dairy,
poultry or aquatic plant and animal products, fiber or fur, or the production of offspring for
use for any such purpose or purposes;

    (p) all sales of drugs, as defined by K.S.A. 65-1626 and amendments thereto, dispensed
pursuant to a prescription order, as defined by K.S.A. 65-1626 and amendments thereto,
by a licensed practitioner;

    (q) all sales of insulin dispensed by a person licensed by the state board of pharmacy to
a person for treatment of diabetes at the direction of a person licensed to practice medicine
by the board of healing arts;

    (r) all sales of prosthetic and orthopedic appliances prescribed in writing by a person
licensed to practice the healing arts, dentistry or optometry. For the purposes of this sub-
section, the term prosthetic and orthopedic appliances means any apparatus, instrument,
device, or equipment used to replace or substitute for any missing part of the body; used
to alleviate the malfunction of any part of the body; or used to assist any disabled person in
leading a normal life by facilitating such person's mobility; such term shall include acces-
sories attached or to be attached to motor vehicles, but such term shall not include motor
vehicles or personal property which when installed becomes a fixture to real property;

    (s) all sales of tangible personal property or services purchased directly by a groundwater
management district organized or operating under the authority of K.S.A. 82a-1020 et seq.
and amendments thereto, which property or services are used in the operation or mainte-
nance of the district;

    (t) all sales of farm machinery and equipment or aquaculture machinery and equipment,
repair and replacement parts therefor and services performed in the repair and maintenance
of such machinery and equipment. For the purposes of this subsection the term ``farm
machinery and equipment or aquaculture machinery and equipment'' shall include machin-
ery and equipment used in the operation of Christmas tree farming but shall not include
any passenger vehicle, truck, truck tractor, trailer, semitrailer or pole trailer, other than a
farm trailer, as such terms are defined by K.S.A. 8-126 and amendments thereto. Each
purchaser of farm machinery and equipment or aquaculture machinery and equipment
exempted herein must certify in writing on the copy of the invoice or sales ticket to be
retained by the seller that the farm machinery and equipment or aquaculture machinery
and equipment purchased will be used only in farming, ranching or aquaculture production.
Farming or ranching shall include the operation of a feedlot and farm and ranch work for
hire and the operation of a nursery;

    (u) all leases or rentals of tangible personal property used as a dwelling if such tangible
personal property is leased or rented for a period of more than 28 consecutive days;

    (v) all sales of food products to any contractor for use in preparing meals for delivery
to homebound elderly persons over 60 years of age and to homebound disabled persons or
to be served at a group-sitting at a location outside of the home to otherwise homebound
elderly persons over 60 years of age and to otherwise homebound disabled persons, as all
or part of any food service project funded in whole or in part by government or as part of
a private nonprofit food service project available to all such elderly or disabled persons
residing within an area of service designated by the private nonprofit organization, and all
sales of food products for use in preparing meals for consumption by indigent or homeless
individuals whether or not such meals are consumed at a place designated for such purpose;

    (w) all sales of natural gas, electricity, heat and water delivered through mains, lines or
pipes: (1) To residential premises for noncommercial use by the occupant of such premises;
(2) for agricultural use and also, for such use, all sales of propane gas; (3) for use in the
severing of oil; and (4) to any property which is exempt from property taxation pursuant to
K.S.A. 79-201b Second through Sixth. As used in this paragraph, ``severing'' shall have the
meaning ascribed thereto by subsection (k) of K.S.A. 79-4216, and amendments thereto;

    (x) all sales of propane gas, LP-gas, coal, wood and other fuel sources for the production
of heat or lighting for noncommercial use of an occupant of residential premises;

    (y) all sales of materials and services used in the repairing, servicing, altering, maintain-
ing, manufacturing, remanufacturing, or modification of railroad rolling stock for use in
interstate or foreign commerce under authority of the laws of the United States;

    (z) all sales of tangible personal property and services purchased directly by a port
authority or by a contractor therefor as provided by the provisions of K.S.A. 12-3418 and
amendments thereto;

    (aa) all sales of materials and services applied to equipment which is transported into
the state from without the state for repair, service, alteration, maintenance, remanufacture
or modification and which is subsequently transported outside the state for use in the trans-
mission of liquids or natural gas by means of pipeline in interstate or foreign commerce
under authority of the laws of the United States;

    (bb) all sales of used mobile homes or manufactured homes. As used in this subsection:
(1) ``Mobile homes'' and ``manufactured homes'' shall have the meanings ascribed thereto
by K.S.A. 58-4202 and amendments thereto; and (2) ``sales of used mobile homes or man-
ufactured homes'' means sales other than the original retail sale thereof;

    (cc) all sales of tangible personal property or services purchased for the purpose of and
in conjunction with constructing, reconstructing, enlarging or remodeling a business or retail
business which meets the requirements established in K.S.A. 74-50,115 and amendments
thereto, and the sale and installation of machinery and equipment purchased for installation
at any such business or retail business. When a person shall contract for the construction,
reconstruction, enlargement or remodeling of any such business or retail business, such
person shall obtain from the state and furnish to the contractor an exemption certificate for
the project involved, and the contractor may purchase materials, machinery and equipment
for incorporation in such project. The contractor shall furnish the number of such certificates
to all suppliers from whom such purchases are made, and such suppliers shall execute
invoices covering the same bearing the number of such certificate. Upon completion of the
project the contractor shall furnish to the owner of the business or retail business a sworn
statement, on a form to be provided by the director of taxation, that all purchases so made
were entitled to exemption under this subsection. All invoices shall be held by the contractor
for a period of five years and shall be subject to audit by the director of taxation. Any
contractor or any agent, employee or subcontractor thereof, who shall use or otherwise
dispose of any materials, machinery or equipment purchased under such a certificate for
any purpose other than that for which such a certificate is issued without the payment of
the sales or compensating tax otherwise imposed thereon, shall be guilty of a misdemeanor
and, upon conviction therefor, shall be subject to the penalties provided for in subsection
(g) of K.S.A. 79-3615 and amendments thereto. As used in this subsection, ``business'' and
``retail business'' have the meanings respectively ascribed thereto by K.S.A. 74-50,114 and
amendments thereto;

    (dd) all sales of tangible personal property purchased with food stamps issued by the
United States department of agriculture;

    (ee) all sales of lottery tickets and shares made as part of a lottery operated by the state
of Kansas;

    (ff) on and after July 1, 1988, all sales of new mobile homes or manufactured homes to
the extent of 40% of the gross receipts, determined without regard to any trade-in allowance,
received from such sale. As used in this subsection, ``mobile homes'' and ``manufactured
homes'' shall have the meanings ascribed thereto by K.S.A. 58-4202 and amendments
thereto;

    (gg) all sales of tangible personal property purchased in accordance with vouchers issued
pursuant to the federal special supplemental food program for women, infants and children;

    (hh) all sales of medical supplies and equipment purchased directly by a nonprofit skilled
nursing home or nonprofit intermediate nursing care home, as defined by K.S.A. 39-923,
and amendments thereto, for the purpose of providing medical services to residents thereof.
This exemption shall not apply to tangible personal property customarily used for human
habitation purposes;

    (ii) all sales of tangible personal property purchased directly by a nonprofit organization
for nonsectarian comprehensive multidiscipline youth development programs and activities
provided or sponsored by such organization, and all sales of tangible personal property by
or on behalf of any such organization. This exemption shall not apply to tangible personal
property customarily used for human habitation purposes;

    (jj) all sales of tangible personal property or services, including the renting and leasing
of tangible personal property, purchased directly on behalf of a community-based mental
retardation facility or mental health center organized pursuant to K.S.A. 19-4001 et seq.,
and amendments thereto, and licensed in accordance with the provisions of K.S.A. 75-3307b
and amendments thereto. This exemption shall not apply to tangible personal property
customarily used for human habitation purposes;

    (kk) on and after January 1, 1989, all sales of machinery and equipment used directly
and primarily for the purposes of manufacturing, assembling, processing, finishing, storing,
warehousing or distributing articles of tangible personal property in this state intended for
resale by a manufacturing or processing plant or facility or a storage, warehousing or dis-
tribution facility:

    (1) For purposes of this subsection, machinery and equipment shall be deemed to be
used directly and primarily in the manufacture, assemblage, processing, finishing, storing,
warehousing or distributing of tangible personal property where such machinery and equip-
ment is used during a manufacturing, assembling, processing or finishing, storing, ware-
housing or distributing operation:

    (A) To effect a direct and immediate physical change upon the tangible personal property;

    (B) to guide or measure a direct and immediate physical change upon such property
where such function is an integral and essential part of tuning, verifying or aligning the
component parts of such property;

    (C) to test or measure such property where such function is an integral part of the
production flow or function;

    (D) to transport, convey or handle such property during the manufacturing, processing,
storing, warehousing or distribution operation at the plant or facility; or

    (E) to place such property in the container, package or wrapping in which such property
is normally sold or transported.

    (2) For purposes of this subsection ``machinery and equipment used directly and pri-
marily'' shall include, but not be limited to:

    (A) Mechanical machines or major components thereof contributing to a manufacturing,
assembling or finishing process;

    (B) molds and dies that determine the physical characteristics of the finished product
or its packaging material;

    (C) testing equipment to determine the quality of the finished product;

    (D) computers and related peripheral equipment that directly control or measure the
manufacturing process or which are utilized for engineering of the finished product; and

    (E) computers and related peripheral equipment utilized for research and development
and product design.

    (3) ``Machinery and equipment used directly and primarily'' shall not include:

    (A) Hand tools;

    (B) machinery, equipment and tools used in maintaining and repairing any type of ma-
chinery and equipment;

    (C) transportation equipment not used in the manufacturing, assembling, processing,
furnishing, storing, warehousing or distributing process at the plant or facility;

    (D) office machines and equipment including computers and related peripheral equip-
ment not directly and primarily used in controlling or measuring the manufacturing process;

    (E) furniture and buildings; and

    (F) machinery and equipment used in administrative, accounting, sales or other such
activities of the business;

    (ll) all sales of educational materials purchased for distribution to the public at no charge
by a nonprofit corporation organized for the purpose of encouraging, fostering and con-
ducting programs for the improvement of public health;

    (mm) all sales of seeds and tree seedlings; fertilizers, insecticides, herbicides, germi-
cides, pesticides and fungicides; and services, purchased and used for the purpose of pro-
ducing plants in order to prevent soil erosion on land devoted to agricultural use;

    (nn) except as otherwise provided in this act, all sales of services rendered by an ad-
vertising agency or licensed broadcast station or any member, agent or employee thereof;

    (oo) all sales of tangible personal property purchased by a community action group or
agency for the exclusive purpose of repairing or weatherizing housing occupied by low
income individuals;

    (pp) all sales of drill bits and explosives actually utilized in the exploration and produc-
tion of oil or gas;

    (qq) all sales of tangible personal property and services purchased by a nonprofit mu-
seum or historical society or any combination thereof, including a nonprofit organization
which is organized for the purpose of stimulating public interest in the exploration of space
by providing educational information, exhibits and experiences, which is exempt from fed-
eral income taxation pursuant to section 501(c)(3) of the federal internal revenue code of
1986;

    (rr) all sales of tangible personal property which will admit the purchaser thereof to any
annual event sponsored by a nonprofit organization which is exempt from federal income
taxation pursuant to section 501(c)(3) of the federal internal revenue code of 1986;

    (ss) all sales of tangible personal property and services purchased by a public broad-
casting station licensed by the federal communications commission as a noncommercial
educational television or radio station;

    (tt) all sales of tangible personal property and services purchased by or on behalf of a
not-for-profit corporation which is exempt from federal income taxation pursuant to section
501(c)(3) of the federal internal revenue code of 1986, for the sole purpose of constructing
a Kansas Korean War memorial;

    (uu) all sales of tangible personal property and services purchased by or on behalf of
any rural volunteer fire-fighting organization for use exclusively in the performance of its
duties and functions;

    (vv) all sales of tangible personal property purchased by any of the following organiza-
tions which are exempt from federal income taxation pursuant to section 501 (c)(3) of the
federal internal revenue code of 1986, for the following purposes, and all sales of any such
property by or on behalf of any such organization for any such purpose:

    (1) The American Heart Association, Kansas Affiliate, Inc. for the purposes of providing
education, training, certification in emergency cardiac care, research and other related serv-
ices to reduce disability and death from cardiovascular diseases and stroke;

    (2) the Kansas Alliance for the Mentally Ill, Inc. for the purpose of advocacy for persons
with mental illness and to education, research and support for their families;

    (3) the Kansas Mental Illness Awareness Council for the purposes of advocacy for per-
sons who are mentally ill and to education, research and support for them and their families;

    (4) the American Diabetes Association Kansas Affiliate, Inc. for the purpose of elimi-
nating diabetes through medical research, public education focusing on disease prevention
and education, patient education including information on coping with diabetes, and pro-
fessional education and training;

    (5) the American Lung Association of Kansas, Inc. for the purpose of eliminating all
lung diseases through medical research, public education including information on coping
with lung diseases, professional education and training related to lung disease and other
related services to reduce the incidence of disability and death due to lung disease;

    (6) the Kansas chapters of the Alzheimer's Disease and Related Disorders Association,
Inc. for the purpose of providing assistance and support to persons in Kansas with Alzhei-
mer's disease, and their families and caregivers; and

    (ww) all sales of tangible personal property purchased by the Habitat for Humanity for
the exclusive use of being incorporated within a housing project constructed by such organ-
ization.; and

    (xx) all sales of tangible personal property and services purchased by a religious organ-
ization which is exempt from federal income taxation pursuant to section 501 (c)(3) of the
federal internal revenue code, and used exclusively for religious purposes.

    Sec. 28. K.S.A. 1997 Supp. 72-6407 is hereby amended to read as follows: 72-6407. (a)
``Pupil'' means any person who is regularly enrolled in a district and attending kindergarten
or any of the grades one through 12 maintained by the district or who is regularly enrolled
in a district and attending kindergarten or any of the grades one through 12 in another
district in accordance with an agreement entered into under authority of K.S.A. 72-8233,
and amendments thereto, or who is regularly enrolled in a district and attending special
education services provided for preschool-aged exceptional children by the district. Except
as otherwise provided in this subsection, a pupil in attendance full time shall be counted as
one pupil. A pupil in attendance part time shall be counted as that proportion of one pupil
(to the nearest 1/10) that the pupil's attendance bears to full-time attendance. A pupil at-
tending kindergarten shall be counted as 1/2 pupil. A pupil enrolled in and attending an
institution of postsecondary education which is authorized under the laws of this state to
award academic degrees shall be counted as one pupil if the pupil's postsecondary education
enrollment and attendance together with the pupil's attendance in either of the grades 11
or 12 is at least 5/6 time, otherwise the pupil shall be counted as that proportion of one pupil
(to the nearest 1/10) that the total time of the pupil's postsecondary education attendance
and attendance in grade 11 or 12, as applicable, bears to full-time attendance. A pupil
enrolled in and attending an area vocational school, area vocational-technical school or
approved vocational education program shall be counted as one pupil if the pupil's vocational
education enrollment and attendance together with the pupil's attendance in any of grades
nine through 12 is at least 5/6 time, otherwise the pupil shall be counted as that proportion
of one pupil (to the nearest 1/10) that the total time of the pupil's vocational education
attendance and attendance in any of grades nine through 12 bears to full-time attendance.
A pupil enrolled in a district and attending special education services, except special edu-
cation services for preschool-aged exceptional children, provided for by the district shall be
counted as one pupil. A pupil enrolled in a district and attending special education services
for preschool-aged exceptional children provided for by the district shall be counted as 1/2
pupil. A pupil in the custody of the secretary of social and rehabilitation services and enrolled
in unified school district No. 259, Sedgwick county, Kansas, but housed, maintained, and
receiving educational services at the Judge James V. Riddel Boys Ranch, shall be counted
as two pupils. A pupil residing at the Flint Hills job corps center shall not be counted. A
pupil confined in and receiving educational services provided for by a district at a juvenile
detention facility shall not be counted. A pupil enrolled in a district but housed, maintained,
and receiving educational services at a state institution shall not be counted.

    (b) ``Preschool-aged exceptional children'' means exceptional children, except gifted
children, who have attained the age of three years but are under the age of eligibility for
attendance at kindergarten.

    (c) ``At-risk pupils'' means pupils who are eligible for free meals under the national
school lunch act and who are enrolled in a district which maintains an approved at-risk pupil
assistance plan.

    (d) ``Enrollment'' means, for districts scheduling the school days or school hours of the
school term on a trimestral or quarterly basis, the number of pupils regularly enrolled in
the district on September 20 plus the number of pupils regularly enrolled in the district on
February 20 less the number of pupils regularly enrolled on February 20 who were counted
in the enrollment of the district on September 20; and for districts not hereinbefore spec-
ified, the number of pupils regularly enrolled in the district on September 20. Notwithstand-
ing the foregoing, if enrollment in a district in any school year has decreased from enrollment
in the preceding school year, enrollment of the district in the current school year may be
computed on the basis of enrollment in the preceding school year.

    (e) ``Adjusted enrollment'' means enrollment adjusted by adding at-risk pupil weighting,
program weighting, low enrollment weighting, if any, correlation weighting, if any, school
facilities weighting, if any, ancillary school facilities weighting, if any, and transportation
weighting to enrollment.

    (f) ``At-risk pupil weighting'' means an addend component assigned to enrollment of
districts on the basis of enrollment of at-risk pupils.

    (g) ``Program weighting'' means an addend component assigned to enrollment of dis-
tricts on the basis of pupil attendance in educational programs which differ in cost from
regular educational programs.

    (h) ``Low enrollment weighting'' means an addend component assigned to enrollment
of districts having under 1,800 1,765 enrollment on the basis of costs attributable to main-
tenance of educational programs by such districts in comparison with costs attributable to
maintenance of educational programs by districts having 1,800 1,765 or over enrollment.

    (i) ``School facilities weighting'' means an addend component assigned to enrollment of
districts on the basis of costs attributable to commencing operation of new school facilities.
School facilities weighting may be assigned to enrollment of a district only if the district has
adopted a local option budget and budgeted therein the total amount authorized for the
school year. School facilities weighting may be assigned to enrollment of the district only in
the school year in which operation of a new school facility is commenced and in the next
succeeding school year.

    (j) ``Transportation weighting'' means an addend component assigned to enrollment of
districts on the basis of costs attributable to the provision or furnishing of transportation.

    (k) ``Correlation weighting'' means an addend component assigned to enrollment of
districts having 1,800 1,765 or over enrollment on the basis of costs attributable to main-
tenance of educational programs by such districts as a correlate to low enrollment weighting
assigned to enrollment of districts having under 1,800 1,765 enrollment.

    (l) ``Ancillary school facilities weighting'' means an addend component assigned to en-
rollment of districts to which the provisions of K.S.A. 1997 Supp. 72-6441, and amendments
thereto, apply on the basis of costs attributable to commencing operation of new school
facilities. Ancillary school facilities weighting may be assigned to enrollment of a district
only if the district has levied a tax under authority of K.S.A. 1997 Supp. 72-6441, and
amendments thereto, and remitted the proceeds from such tax to the state treasurer. An-
cillary school facilities weighting is in addition to assignment of school facilities weighting
to enrollment of any district eligible for such weighting.

    Sec. 29. K.S.A. 1997 Supp. 72-6410 is hereby amended to read as follows: 72-6410. (a)
``State financial aid'' means an amount equal to the sum of the product obtained by multi-
plying base state aid per pupil by the adjusted enrollment of a district and the product
obtained by multiplying state aid per pupil, if any, by the enrollment of the district if the
district is entitled to state aid per pupil.

    (b) ``Base state aid per pupil'' means an amount of state financial aid per pupil. Subject
to the other provisions of this subsection, the amount of base state aid per pupil is $3,670
$3,711. The amount of base state aid per pupil is subject to reduction commensurate with
any reduction under K.S.A. 75-6704, and amendments thereto, in the amount of the ap-
propriation from the state general fund for general state aid. If the amount of appropriations
for general state aid is insufficient to pay in full the amount each district is entitled to receive
for any school year, the amount of base state aid per pupil for such school year is subject
to reduction commensurate with the amount of the insufficiency.

    (c) ``State aid per pupil'' means an amount of state financial aid per pupil enrolled in a
district having 1,200-1,764 enrollment. The amount of state aid per pupil is $19.

    (c) (d) ``Local effort'' means the sum of an amount equal to the proceeds from the tax
levied under authority of K.S.A. 72-6431, and amendments thereto, and an amount equal
to any unexpended and unencumbered balance remaining in the general fund of the district,
except amounts received by the district and authorized to be expended for the purposes
specified in K.S.A. 72-6430, and amendments thereto, and an amount equal to any unex-
pended and unencumbered balances remaining in the program weighted funds of the dis-
trict, except any amount in the vocational education fund of the district if the district is
operating an area vocational school, and an amount equal to any remaining proceeds from
taxes levied under authority of K.S.A. 72-7056 and 72-7072, and amendments thereto, prior
to the repeal of such statutory sections, and an amount equal to the amount deposited in
the general fund in the current school year from amounts received in such year by the
district under the provisions of subsection (a) of K.S.A. 72-1046a, and amendments thereto,
and an amount equal to the amount deposited in the general fund in the current school year
from amounts received in such year by the district pursuant to contracts made and entered
into under authority of K.S.A. 72-6757, and amendments thereto, and an amount equal to
the amount credited to the general fund in the current school year from amounts distributed
in such year to the district under the provisions of articles 17 and 34 of chapter 12 of Kansas
Statutes Annotated and under the provisions of articles 42 and 51 of chapter 79 of Kansas
Statutes Annotated, and (1) for districts other than the district created by K.S.A. 72-5333a,
and amendments thereto, an amount equal to 75% of the federal impact aid of a district
and (2) for the district created by K.S.A. 72-5333a, and amendments thereto, an amount
equal to the federal impact aid of the district.

    (d) (e) ``Federal impact aid'' means an amount equal to the federally qualified percent-
age of the amount of moneys a district receives in the current school year under the pro-
visions of title I of public law 874 and congressional appropriations therefor, excluding
amounts received for assistance in cases of major disaster and amounts received under the
low-rent housing program. The amount of federal impact aid defined herein as an amount
equal to the federally qualified percentage of the amount of moneys provided for the district
under title I of public law 874 shall be determined by the state board in accordance with
terms and conditions imposed under the provisions of the public law and rules and regu-
lations thereunder.

    Sec. 30. K.S.A. 1997 Supp. 72-6412 is hereby amended to read as follows: 72-6412.
The low enrollment weighting of each district with under 1,800 1,765 enrollment shall be
determined by the state board as follows:

    (a) Determine the amount of the median budget per pupil for the 1991-92 school year
of districts with 75-125 enrollment in such school year;

    (b) determine the amount of the median budget per pupil for the 1991-92 school year
of districts with 200-399 enrollment in such school year;

    (c) determine the amount of the median budget per pupil for the 1991-92 school year
of districts with 1,900 or over enrollment;

    (d) prescribe a schedule amount for each of the districts by preparing a schedule based
upon an accepted mathematical formula and derived from a linear transition between (1)
the median budgets per pupil determined under (a) and (b), and (2) the median budgets
per pupil determined under (b) and (c). The schedule amount for districts with 0-99 en-
rollment is an amount equal to the amount of the median budget per pupil determined
under (a). The schedule amount for districts with 100-299 enrollment is the amount derived
from the linear transition under (1). The schedule amount for districts with 300-1,899 en-
rollment is the amount derived from the linear transition under (2);

    (e) for districts with 0-99 enrollment:

    (1) Subtract the amount determined under (c) from the amount determined under (a);

    (2) divide the remainder obtained under (1) by the amount determined under (c);

    (3) multiply the quotient obtained under (2) by the enrollment of the district in the
current school year. The product is the low enrollment weighting of the district;

    (f) for districts with 100-299 enrollment:

    (1) Subtract the amount determined under (c) from the schedule amount of the district;

    (2) divide the remainder obtained under (1) by the amount determined under (c);

    (3) multiply the quotient obtained under (2) by the enrollment of the district in the
current school year. The product is the low enrollment weighting of the district;

    (g) for districts with 300-1,799 300-1,764 enrollment:

    (1) Subtract the amount determined under (c) from the schedule amount of the district;

    (2) divide the remainder obtained under (1) by the amount determined under (c);

    (3) multiply the quotient obtained under (2) by the enrollment of the district in the
current school year. The product is the low enrollment weighting of the district.

    Sec. 31. K.S.A. 1997 Supp. 72-6414 is hereby amended to read as follows: 72-6414.
The at-risk pupil weighting of each district shall be determined by the state board by mul-
tiplying the number of at-risk pupils included in enrollment of the district by .065 .08. The
product is the at-risk pupil weighting of the district.

    Sec. 32. K.S.A. 1997 Supp. 72-6442 is hereby amended to read as follows: 72-6442.
The correlation weighting of each district with 1,800 1,765 or over enrollment shall be
determined by the state board as follows:

    (a) Determine the schedule amount for a district with 1,800 1,765 enrollment as derived
from the linear transition under (d) of K.S.A. 72-6412, and amendments thereto, and sub-
tract the amount determined under (c) of K.S.A. 72-6412, and amendments thereto, from
the schedule amount so determined;

    (b) divide the remainder obtained under (a) by the amount determined under (c) of
K.S.A. 72-6412, and amendments thereto, and multiply the quotient by the enrollment of
the district in the current school year. The product is the correlation weighting of the district.

    Sec. 33.

DEPARTMENT OF EDUCATION
    (a) There is appropriated for the above agency from the state general fund for the fiscal
year ending June 30, 1999, the following:

Innovative program assistance $975,000
Provided, That expenditures shall be made by the department of education from the in-
novative program assistance account for grants to school districts to provide for structured
mentoring programs, including the HOSTS program, in reading, mathematics, language arts
or Spanish language arts.

    Sec. 34. K.S.A. 79-201t, 79-201x, 79-1537, 79-1537b, 79-1537c, 79-1537e, 79-1537f,
79-1538, 79-1538a, 79-1539, 79-1540, 79-1541, 79-1541a, 79-1541b, 79-1542, 79-1542a, 79-
1543, 79-1545, 79-1547, 79-1548, 79-1549, 79-1550, 79-1551, 79-1552, 79-1553, 79-1554,
79-1555, 79-1556, 79-1557, 79-1557a, 79-1559, 79-1560, 79-1561, 79-1562, 79-1563,
79-1563a, 79-1564, 79-1565, 79-1566, 79-1567, 79-1567a, 79-1568, 79-1569, 79-1570, 79-
1571, 79-1572, 79-1573, 79-1574, 79-1575, 79-1576, 79-1579, 79-1580, 79-1584, 79-1584a,
79-1584b, 79-1584c, 79-1585, 79-1586, 79-1587, 79-32,110, 79-32,119, 79-32,121, 79-3603,
79-3606, as amended by section 27 of 1998 Senate Bill No. 373 and 79-4217 and K.S.A.
1997 Supp. 72-6407, 72-6410, 72-6412, 72-6414, 72-6431 and 72-6442 are hereby repealed.

    Sec. 35. This act shall take effect and be in force from and after its publication in the
statute book.'';

    In the title, by striking all in lines 14 through 18 and inserting:

``enacting the Kansas Education and Tax Reform Act of 1998; amending K.S.A. 79-201t,
79-201x, 79-1541a, 79-1541b, 79-1542, 79-1564, 79-1569, 79-1570, 79-1571, 79-1572, 79-
1574, 79-1575, 79-1576, 79-1579, 79-1580, 79-1587, 79-32,110, 79-32,119, 79-32,121, 79-
3603, 79-3606, as amended by section 27 of 1998 Senate Bill No. 373 and 79-4217 and
K.S.A. 1997 Supp. 72-6407, 72-6410, 72-6412, 72-6414, 72-6431 and 72-6442 and repealing
the existing sections; also repealing K.S.A. 79-1537, 79-1537b, 79-1537c, 79-1537e, 79-
1537f, 79-1538, 79-1538a, 79-1539, 79-1540, 79-1541, 79-1542a, 79-1543, 79-1545, 79-1547,
79-1548, 79-1549, 79-1550, 79-1551, 79-1552, 79-1553, 79-1554, 79-1555, 79-1556, 79-
1557, 79-1557a, 79-1559, 79-1560, 79-1561, 79-1562, 79-1563, 79-1563a, 79-1565, 79-1566,
79-1567, 79-1567a, 79-1568, 79-1573, 79-1584, 79-1584a, 79-1584b, 79-1584c, 79-1585 and
79-1586.'' and the bill be passed as amended.

 Committee on Education recommends SB 604 be passed.

 Committee on Elections and Local Government recommends HB 2564 be passed.

 Also HB 2552, 2559, 2561, 2562, 2635, 2787 be passed and, because the committee
is of the opinion that the bills are of a noncontroversial nature, be placed on the consent
calendar.

 Committee on Energy and Natural Resources recommends HB 2418 be amended
on page 1, in line 14, by striking ``1996'' and inserting ``1997'';

    On page 2, in line 1, by striking ``on and after January 1, 1998,''; in line 5, by striking ``On
and after January 1, 1998,'';

    On page 3, in line 15, by striking ``1996'' and inserting ``1997'';

    In the title, in line 11, by striking ``1996'' and inserting ``1997''; and the bill be passed as
amended.

 Committee on Federal and State Affairs recommends SB 651 be not passed.

 Committee on Financial Institutions and Insurance recommends Substitute for
HB 2640 be amended on page 1, preceding line 13, by inserting two sections as follows:

    ``Section 1. K.S.A. 40-3902 is hereby amended to read as follows: 40-3902. The gov-
erning body of any city is hereby authorized to create, by ordinance, a lien in favor of any
such city in the proceeds of any insurance policy based upon a covered claim payment made
for damage or loss to a building or other structure, caused by or arising out of any fire or,
explosion or windstorms. The lien arises upon any unpaid tax, special ad valorem levy, special
assessment or other charge imposed upon real property by or on behalf of the city which is
an encumbrance on real property, whether or not evidenced by written instrument, or such
tax, levy, assessment, expense or other charge that has remained undischarged for at least
one year prior to the filing of a proof of loss.

    Sec. 2. K.S.A. 40-3904 is hereby amended to read as follows: 40-3904. The governing
body of any county is hereby authorized to create, by resolution, a lien in favor of any such
county in the proceeds of any insurance policy based upon a covered claim payment made
for damage or loss to a building or other structure, caused by or arising out of any fire or,
explosion or windstorms. The lien arises upon any unpaid tax, special ad valorem levy, special
assessment or other charge imposed upon real property by or on behalf of the county which
is an encumbrance on real property, whether or not evidenced by written instrument, or
such tax, levy, assessment, expense or other charge that has remained undischarged for at
least one year prior to the filing of a proof of loss. This resolution shall not apply to cities
which have adopted an ordinance under the provisions of K.S.A. 40-3902 and amendments
thereto.'';

    Also on page 1, in line 13, by striking ``Section 1.'' and inserting ``Sec. 3.''; in line 22, by
striking ``or'' and inserting a comma; also in line 22, after ``explosion'' by inserting ``or wind-
storms''; in line 28, before ``40-3905'' by inserting ``40-3902, 40-3904 and''; also in line 28,
by striking ``is'' and inserting ``are''; in line 30, by striking ``statute book'' and inserting
``Kansas register'';

    By renumbering sections accordingly;

    In the title in line 10, before ``40-3905'' by inserting ``40-3902, 40-3904 and''; also in line
10, by striking ``section'' and inserting ``sections''; and the substitute bill be passed as
amended.

 Committee on Transportation and Tourism recommends HB 2760 be passed.

 Committee on Ways and Means recommends SB 611 be passed.

 Also SB 494, as amended by Senate Committee, be amended by substituting a new bill
to be designated as ``Substitute for SENATE BILL No. 494,'' as follows:

``Substitute for SENATE BILL No. 494
By Committee on Ways and Means


``AN ACT concerning insurance; insurance department service regulation fund; amending
      K.S.A. 1997 Supp. 40-112 and repealing the existing section; also repealing K.S.A. 1997
      Supp. 40-112a.''; and the substitute bill be passed.

      REPORT ON ENGROSSED BILLS
 SB 410 correctly re-engrossed March 6, 1998.

 On motion of Senator Emert the Senate adjourned until 2:30 p.m., Wednesday, March
11, 1998.

HELEN A. MORELAND, Journal Clerk. 
PAT SAVILLE, Secretary of the Senate.