What did the 2013 legislation change for the Kansas mineral severance tax?

Plain-English summary

Kansas Notice 13-15 (July 1, 2013) summarizes 2013 mineral severance tax changes from House Bill 2059 and House Substitute for Senate Bill 83.

HB 2059 changes.

• Definition of "gas" (K.S.A. 79-4216(c)): Section 13 clarified that "gas" means natural gas and all constituent parts and refined products derived from it -- including methane, ethane, propane, butane and helium -- taken from below the surface, whether from a gas well or a well also producing oil.
• No refunds (K.S.A. 79-4226(d)): Section 14 added a provision barring any refund of mineral severance tax based on any claim filed on or after July 1, 1983 alleging that gas constituents or refined products are not taxable under K.S.A. 79-4216 et seq.

House Sub for SB 83 changes -- new oil pool exemption. A 2012 amendment to K.S.A. 79-4217(b)(4) limited the 24-month first-production exemption so that gas or oil first produced on or after July 1, 2012 is not exempt -- except a new oil pool may qualify if production does not exceed 50 barrels per day (see Notice 12-02). Section 7 of House Sub for SB 83 clarifies that the 50-barrel threshold is determined by the initial six months of production (absent significant curtailment), and that the exemption terminates if average daily severance/production later exceeds 50 barrels per day in any qualifying month during months 7 through 24 of the exemption period.

What this means for you

Oil and gas producers

• Gas constituents and refined products are taxable, and severance-tax refund claims on that theory are barred. For a new oil pool, the 24-month exemption depends on staying at or under 50 barrels/day, judged by the first six months of production.

Tax preparers

• Track new-oil-pool production against the 50-barrel/day threshold; exceeding it in months 7-24 ends the exemption.

Common questions

What now counts as "gas"? Natural gas and all its constituent parts and refined products (methane, ethane, propane, butane, helium).

Can I get a refund arguing constituents are not taxable? No -- such refund claims (filed on or after July 1, 1983) are barred.

How is the new-oil-pool exemption measured? By the initial six months of production, with a 50-barrel-per-day ceiling.

What ends the exemption? Average daily production exceeding 50 barrels/day during months 7 through 24.

Citations and references

• K.S.A. 79-4216(c) -- clarified definition of "gas" (2013 HB 2059, Section 13).
• K.S.A. 79-4226(d) -- bar on certain severance-tax refunds (2013 HB 2059, Section 14).
• K.S.A. 79-4217(b)(4) -- the new-oil-pool 24-month exemption, refined by Section 7 of 2013 House Substitute for Senate Bill 83.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 13-15

Original ruling text

Policy & Research Phone: 785-296-3081
915 SW Harrison St FAX: 785-296-7928
Topeka KS 66612-1588 www.ksrevenue.org
Nick Jordan, Secretary Department of Revenue Sam Brownback, Governor
Richard Cram, Director

                                       NOTICE 13-15

                     2013 MINERAL SEVERANCE TAX LEGISLATIVE UPDATE
                                      (July 1, 2013)

  During the 2013 Legislative Session House Substitute for Senate Bill 83 and House Bill

2059 were passed and signed into law. Changes made by these Bills affect the mineral severance
tax in Kansas.

HB 2059 Changes

   Definitions that affect the mineral severance tax are found in K.S.A. 79-4216. Section 13

of HB 2059 amended the definition of "gas" found in K.S.A. 79-4216(c) to provide additional
clarification. The amended language provides:

      (c) "Gas" means natural gas, and all other raw, unrefined gas or gases, all
 constituent parts of any such gas or gases and refined products derived from any such
 gas or gases, including, but not limited to, methane, ethane, propane, butane and
 helium, taken from below the surface of the earth or water in this state, regardless of
 whether from a gas well or from a well also productive of oil or any other product.

 A related amendment is found in Section 14 of HB 2059. This provision amends K.S.A.

79-4226 to add subsection (d), which prohibits certain refunds. The new language provides:

       (d) No refund of mineral severance tax shall be allowed by the director or by
 any court of this state based on any administrative or judicial claim, petition,
 pleading, cause of action or request for relief that has been or may be filed on or
 after July 1, 1983, alleging that any constituent part of gas and any refined products
 derived from any such gas are not taxable pursuant to the provisions of K.S.A. 79-
 4216 et seq., and amendments thereto.

House Sub for SB 83 Changes

  The mineral severance tax is imposed by K.S.A. 79-4217. During the 2012 Legislative

Session K.S.A. 79-4217(b)(4) was amended to limit an exemption for the first 24 months of
production of oil or gas from a "pool" to "the severance of gas or oil from any pool from which
oil or gas was first produced on or after April 1, 1983, and prior to July 1, 2012 . . ." As a result
of this language, gas or oil first produced on or after July 1, 2012 is not exempt from the mineral
severance tax. There is, however, an exception for new oil pools, in which case the 24 month
exemption is available for initial production occurring on or after July 1, 2012, but only if
production from the pool does not exceed 50 barrels per day. [See Notice 12-02]

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  Section 7 of House Sub for SB83 further clarifies the new oil pool exemption. It provides

that the 50-barrel-per-day threshold enacted in 2012 will be determined based on the initial six
months of production from each well, assuming the well has not been significantly curtailed by
reason of mechanical failure or other disruption of production. It also provides that, for any well
that has qualified for exemption, if the average daily severance and production of oil exceeds 50
barrels per day within any qualifying one-month production period after the initial qualifying
production period (i.e. during months 7 through 24 of the exemption period), the exemption for
the well shall be terminated as of the commencement of the month.

                                  Taxpayer Assistance

Additional copies of this notice, forms or publications are available from our web site,
www.ksrevenue.org. If you have questions about this Notice, please contact:

                                     Mineral Tax
                             Kansas Department of Revenue
                                 915 SW Harrison St.
                                  Topeka, KS 66612
                                 Phone: 785-296-7713
                                  Fax: 785-296-4993

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