How did Kansas define a disruption of oil or gas production for mineral severance tax?

Plain-English summary

1992 Senate Bill 216 added a definition of "disruption of production" for Kansas mineral severance tax.

For an oil well, a disruption meant a continuous 24-hour period during which the well was not producing. Circulating and missed-production days still counted as production days if the operator could demonstrate that the lost production was later recovered.

For a gas well, a disruption meant a continuous one-hour period during which the well was not open to the pipeline. Missed-production hours still counted as production hours if the operator could demonstrate later recovery of the lost production.

The Department emphasized record preservation. Examples included:

• Oil: pumper reports, gauger reports, roustabout reports, service billings, and barrel tests.
• Gas: gauger reports, service billings, line-pressure readings, meter charts, and third-party meter-reading reports.

If the necessary supporting information was unavailable, the claimed exemption could be denied.

The notice also quotes K.S.A. 79-4224, which authorized the Director to require additional information, examine meters, charts, books, records, and files, issue subpoenas, and examine witnesses.

What this means for you

An operator claiming a severance-tax benefit tied to a production disruption needed time-specific operating records and proof of whether missed production was recovered later. A shut-in period alone did not establish the tax treatment without documentation.

Common questions

Q: How long did an oil well have to stop producing?
A: A continuous 24 hours.

Q: How long did a gas well have to be off the pipeline?
A: A continuous one hour.

Q: Did missed production always count as a disruption?
A: No. If the operator showed the lost production was recovered later, the missed day or hour was treated as a production period.

Q: What if the operator lacked supporting records?
A: The notice says the exemption could be denied.

Citations and references

• 1992 Senate Bill 216 — disruption-of-production definition.
• K.S.A. 79-4224 — Department information, examination, and subpoena authority.

Subject

Enactment of New Legislation Concerning Mineral Severance Tax

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 92-0701

Original ruling text

Notice
Notice Number:
Tax Type: Mineral Severance Tax
Brief Description: New Legislation,Definitions
Keywords:
Effective Date: 07/01/1992

Body:
NOTICE

To: Oil and Gas Industry Operators/Producers and Purchasers

From: Kansas Department of Revenue, Business Tax Bureau, Mineral Tax Section

Date: July 1, 1992

Subject: Enactment of New Legislation Concerning Mineral Severance Tax

Senate Bill 216 of the 1992 Legislative Session has included a new definition of terms relating to the Kansas Statutes Annotated,
Article 42, Mineral Severance Tax.

"Disruption of production" means, in the case of oil, a continuous 24-hour period during which a well is not producing. Circulating
and missed production days shall be considered production days if the operator can demonstrate that any lost productions
subsequently recovered during a later production day. In the case of gas, a continuous one-hour period during which a well is not
open to the pipeline shall be deemed to be a disruption of production. Missed production hours shall be considered production hours
if the operator can demonstrate that any lost production is subsequently recovered during later production hours.

It is extremely important for all relevant documentation to be preserved and to be made available for audit in order to substantiate
any claims made relating to the above definition or any other Mineral Tax issue. Certain specific items to re retained for review may
include, but not be limited to:

                 For oil - pumper reports, gauger reports, roustabout reports, service billings, and barrel tests.

               For gas - gauger reports, service billings, line pressure readings, meter charts, and reports provided by third party
               meter reading companies.
  If the necessary information is not available, the exemption may be denied.

  KSA 79-4224 states, "The director shall have the power to require any operator, producer or person purchasing any coal, oil or
  gas severed from the earth or water to furnish any additional information deemed to be necessary for the purpose of computing
  the amount of tax, and for such purpose to examine the meter and other charts, books, records and all files of such person, and
  for such purpose the director shall have the power to issue subpoenas and examine witnesses under oath, and if any witness
  shall fail to appear at the request of the director, or refuse access to books, records and files, the district court of the proper
  county, or the judge thereof , on application of the director, shall compel obedience by proceedings for contempt, an in the case
  of disobedience of the requirements of a subpoena issued from such court or a refusal to testify therein."

  Please direct any questions you may have to Mineral Tax Section, 3rd Floor, Docking State Office Building, Topeka, KS
  66625-0001 or phone 913-296-7713

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

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