How do oil and gas working interest owners and pass-through owners claim the Kansas business machinery and equipment income tax credit?

Plain-English summary

This notice explains the correct way for working interest owners, shareholders, partners, and members to claim the Kansas income tax credit for personal property taxes paid on business machinery and equipment (K.S.A. 79-32,206), on Schedule K-64, for tax years after December 31, 1997.

Pass-through rule. For an S corporation, partnership, or LLC, the credit is claimed by the shareholders, partners, or members in the same proportion as they report the entity's income or loss.

Oil and gas. Each working interest owner claims the credit based on its share of the ad valorem taxes paid on prescribed and itemized equipment. The operator must provide each owner with a copy of the paid 1998 property tax receipt, the tax paid on the prescribed equipment, and the owner's share. Alternatively, the operator may file an information return, Form K-64O, with the Department for all wells (attaching the tax receipts and per-well schedules) and give each owner a joint interest billing to support the credit.

Individual and corporate owners claim the credit on Schedule K-64; S corporations, partnerships, and LLCs pass the credit through to their owners to claim on their individual returns.

What this means for you

If you own a working interest in Kansas oil and gas or hold an interest in a pass-through business, this notice tells you and your operator/entity exactly what documentation is needed -- paid property tax receipts and each owner's share -- to claim the business machinery and equipment credit on Schedule K-64.

Common questions

Q: Who claims the credit when the business is an S corporation, partnership, or LLC?
A: The shareholders, partners, or members claim it on their own returns, in the same proportion as they report the entity's income or loss.

Q: What can an oil and gas operator do instead of giving each owner a tax receipt?
A: File an information return (Form K-64O) with the Department covering all wells, then give each working interest owner a joint interest billing showing the property tax paid.

Citations and references

• K.S.A. 79-32,206 (income tax credit for property taxes paid on business machinery and equipment)
• Kansas Schedule K-64 (Business Machinery and Equipment Credit)
• Form K-64O (operator information return)

Subject

Business Machinery and Equipment Tax Credit

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 99-01

Original ruling text

Notice
Notice Number: 99-01
Tax Type: Individual Income Tax; Corporate Income Tax
Brief Description: Income tax credit for personal property taxes paid on business machinery and
equipment.
Keywords:
Approval Date: 04/20/1999

Body:
NOTICE 99-01
Business Machinery and Equipment Tax Credit
For taxable years after December 31, 1997, advice has been requested on the correct manner for working interest
owners, shareholders, partners, and members of an enterprise to claim the Kansas income tax credit for personal
property taxes paid on business machinery and equipment. This income tax credit is claimed on Kansas Schedule K-
64, “Business Machinery and Equipment Credit.”

Our advice is based on the direction given in K.S.A. 79-32,206 that established the credit:

       “…If the taxpayer is a corporation having an election in effect under sub-chapter 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.” (Emphasis added.)

Oil AND GAS Operators and Working Interest Owners

In the oil and gas industry, the credit authorized by K.S.A. 79-32,206 will be claimed by each of the working interest
owners on their income tax return. The basis of the credit claimed on Schedule K-64 will be their share of the ad
valorem taxes paid on prescribed and itemized equipment. In order to do this, operators will need to provide each
working interest owner with:

· a copy of the tax receipt showing payment of the 1998 property tax;
· the amount of tax paid on the prescribed and itemized equipment; and
· the working interest owner’s share of those taxes.

As an alternative to the above method, an operator may choose instead to file an information return with the Kansas
Department of Revenue providing the above information for all wells. This information return, new Form K-64O, is
enclosed. The operator must attach to the information return, a copy of the tax receipt showing payment of the 1998
property tax for each well and a schedule showing the following for each well:

· the amount of tax paid on the prescribed and itemized equipment;
· the name and identification number (SSN or federal EIN) of each working interest owner, and
· each working interest owner’s share of the qualifying taxes.

The K-64O shall be filed as an information return, and as such, will not be included with the working interest owners
income tax return.

Operators who elect to file this information return will then provide each working interest owner with a copy of the
joint interest billing indicating the amount of property tax paid on the prescribed and itemized equipment. The
working interest owners will complete Schedule K-64 and attach copies of the joint interest billings showing the taxes
on which they are claiming the credit.

Page 2

Working interest owners who are individuals and corporations will claim the credit on their tax returns using Schedule
K-64. Working interest owners who are S-corporations, partnerships or limited liability companies will pass the credit
through to the individual shareholders, partners or members to be claimed on their individual tax returns as outlined
below.

S-CORPORATIONS, Partnerships, and Limited Liability Companies

Shareholders, partners and members will claim the credit on their individual tax returns by completing Kansas
Schedule K-64. In order to do this, the S-corporation, partnership or limited liability company must provide each
shareholder, partner, or member with:

· a copy of the tax receipt showing payment of the 1998 property tax;
· a breakdown of the tax paid on qualified machinery and equipment if total taxes paid and shown on the receipt
includes non-qualifying property (necessary in all cases for oil & gas property); and
· the shareholder, partner or member’s proportionate share of the taxes paid.

TAXPAYER ASSISTANCE

To obtain Schedule K-64, call the Kansas Department of Revenue’s voice mail forms request line at (785) 296-4937.
For more information on this tax credit, contact any of the Kansas Department of Revenue offices listed below or visit
our web site: www.ink.org/public/kdor. Contact your county officials for information or assistance in determining the
amount of personal property taxes paid on commercial and industrial machinery and equipment.

      Topeka Assistance          Metropolitan Assistance Center       Wichita Assistance Center
           Center

    (785) 296-0222                     (913) 677-0158                      (316) 337-6140

Docking State Office Building Cloverleaf Office Park, Bldg. 3 State Office Building
915 SW Harrison, 1st Floor 6405 Metcalf Ave., Suite 120 230 E. William, Room 7150
Topeka, KS 66612-1588 Overland Park, KS 66202-3928 Wichita, KS 67202-4002

Notice 99-01
April 14, 1999

Date Composed: 04/20/1999 Date Modified: 12/19/2001

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