How did 1984 legislation change the Kansas severance tax exemptions for natural gas, crude oil, and new pools?

Plain-English summary

This 1984 Departmental Memorandum from the Mineral Tax Bureau told Kansas natural gas and crude oil operators about "a few minor changes" the 1984 Legislature made to the state's severance tax law. The short version: it spells out how the $81-a-day natural gas exemption is calculated when several wells feed a common meter, clarifies the crude oil exemption is measured per producing well, and describes the 24-month exemption for production from a "New Pool."

• The $81-a-day natural gas exemption, through a common meter. The exemption "shall be computed by dividing the total value of production gauged at meter by the number of wells feeding into the meter with the result divided by the number of days the wells produced during the month." The memo's worked example: a purchaser buys $5,280.14 of gas in February from four wells gauged through a common meter, so average daily production is $5,280.14 ÷ 4 = $1,320.04 ÷ 20 = $66.00 — "less than $81 a day and accordingly exempt from severance tax for the month of February."
• Crude oil exemption clarified to "per producing well." The crude oil lease exemption "was clarified by adding 'per producing well' for determining the average daily production from a lease," and the memo notes "[t]he Department of Revenue has used this definition in granting all lease exemptions" — i.e., the change confirmed existing practice.
• "New Pool" status and the 24-month exemption. "'New Pool' status is to be determined by the Kansas Corporation Commission and certified to the Director of Taxation." Production from a New Pool "is exempt for a period of 24 months f[ro]m date oil or gas was first produced from such pool."
• When "first production" starts. For an oil well, it is the date the pumper turned on the pumping unit (or the valve was turned on for a flowing well) to permit production into permanent facilities, "verifiable by pumper gage sheet." For a gas well, it is "the first date that gas is produced through a sales meter measuring production into a gas purchaser or gas transporter's pipeline," verifiable by the gas purchaser.

What this means for you

Natural gas operators using a common meter

When multiple wells feed a single meter, you don't test the meter total against $81/day directly. You divide the total value by the number of wells, then by the number of producing days, and compare that per-well daily average to the $81 threshold. The memo's example shows how several wells sharing a meter can each fall under the exemption.

Crude oil operators

The exemption is measured per producing well, not per lease as a whole. The memo frames this as a clarification of what the Department was already doing, so it confirmed rather than changed the practice.

Anyone claiming a New Pool exemption

The exemption runs 24 months from first production, and "New Pool" status comes from the Kansas Corporation Commission (certified to the Director of Taxation) — not from the operator's own designation. Keep the records the memo points to (pumper gage sheets for oil, gas-purchaser sales-meter records for gas) to establish the first-production date.

Common questions

Q: How is the $81-a-day natural gas exemption figured when wells share a meter?
A: Divide the total value of production at the meter by the number of wells feeding it, then divide by the number of days the wells produced that month. If the result is under $81 a day, the production is exempt for that month.

Q: Is the crude oil exemption measured per lease or per well?
A: Per producing well. The 1984 change clarified the average-daily-production test by adding "per producing well," reflecting the Department's existing practice.

Q: How long is New Pool production exempt, and who decides what a New Pool is?
A: It is exempt for 24 months from the date oil or gas was first produced from the pool. "New Pool" status is determined by the Kansas Corporation Commission and certified to the Director of Taxation.

Citations and references

• 1984 Kansas severance tax legislation — the memo describes 1984 legislative changes to the Kansas severance tax law (the $81/day natural gas exemption computation, the "per producing well" crude oil clarification, and the 24-month New Pool exemption). It does not cite specific K.S.A. section numbers.
• Kansas Corporation Commission — determines "New Pool" status and certifies it to the Director of Taxation, which starts the 24-month new-pool exemption period.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: MEMO-NaturalGasExemptions

Original ruling text

Memorandum

Body:

M E M O R A N D U M

TO: Kansas Natural Gas and Crude Operators

FROM: Bob Clelland, Acting Manager, Mineral Tax Bureau

DATE: May 25, 1984

SUBJECT: 1984 Legislative Change to Kansas Severance Tax Law

The 1984 Kansas Legislature made a few minor changes to the severance tax law. Following is a brief description of these changes:

The $81 a day exemption, for natural gas, shall be computed by dividing the total value of production gauged at meter by the number of wells feeding into the meter with the result divided by the number of days the wells produced during the month.

Example: Purchaser A buys $5,280.14 of gas from Operator B during the month of February. Four wells produced this gas which was gauged through a common meter. Average daily productions is $5,280.14 ÷ 4 = $1,320.04 ÷ 20 = $66.00. Average daily production is less than $81 a day and accordingly exempt from severance tax for the month of February.

The crude oil lease exemption was clarified by adding "per producing well" for determining the average daily production from a lease. The Department of Revenue has used this definition in granting all lease exemptions. "New Pool" status is to be determined by the Kansas Corporation Commission and certified to the Director of Taxation. This clarifies current procedures.

Production from a "New Pool" is exempt for a period of 24 months form date oil or gas was first produced from such pool. Date of first production shall be defined as:

1. For an oil well - the date the well pumper turned on the pumping unit for a pumping oil well or the date the well valve was turned on for a flowing oil well, to permit production into permanent production facilities. This date occurs after the well is officially completed, when normally the well is turned over from the completion foreman to the well pumper, and in either case (flowing or pumping well) is verifiable by pumper gage sheet.

2. For a gas well - the first date that gas is produced through a sales meter measuring production into a gas purchaser or gas transporter's pipeline. This date is verifiable by the gas purchaser.

Questions concerning any of the above legislative actions or current policies and procedures can be directed to:

Kansas Department of Revenue
Division of Taxation
Mineral Tax Bureau
Topeka, KS 66625

(913) 296-7713

Date Composed: 10/06/1997 Date Modified: 10/09/2001

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