What refundable income tax credit did Senate Bill 45 give Kansas oil lease working interest owners?

Plain-English summary

Senate Bill 45 (1999) gives oil lease working interest owners a refundable Kansas income tax credit tied to property tax on low-output ('marginal') leases -- those whose average daily production per well is 15 barrels or less.

• 75% credit of the 1998 personal property tax paid on the working interest, for the tax year beginning after December 31, 1997 (property tax levied for 1998 and timely paid). Excess is refunded.
• 50% credit of the personal property tax paid, for tax years after December 31, 1998, when the price per barrel is $16 or less per the Director of Property Valuation's oil and gas appraisal guide. Excess is refunded.
• Average daily production per well = annual lease production / 365 / number of wells (use 1997 production for the 75% credit; the property-tax-year rendition production for later years).

This credit may not be taken in the same year as the 15% K.S.A. 79-32,206 business machinery credit (see Notice 99-01). Owners who already claimed the 15% credit on their 1998 return may file an amended 1998 return replacing it with Schedule K-50. Operators supply working interest owners with the paid property tax receipt and each owner's share (or file information return Form K-64O). Pass-through entities pass the credit through to owners on Schedule K-50.

What this means for you

If you own a working interest in a low-producing Kansas oil lease (15 barrels a day or less per well), SB 45 lets you claim a refundable credit for a large share of the property tax on that interest -- but you must choose between this credit and the separate business machinery credit for the same year.

Common questions

Q: How large is the credit and is it refundable?
A: For the first year it is 75% of the 1998 property tax on the working interest; for later years 50% when oil is $16/barrel or less. Any credit exceeding your tax liability is refunded.

Q: Can I claim this and the business machinery credit in the same year?
A: No. The Oil Lease Working Interest Credit cannot be taken in the same year as the K.S.A. 79-32,206 business machinery and equipment credit.

Citations and references

• 1999 Senate Bill 45 (Oil Lease Working Interest Credit)
• K.S.A. 79-32,206 (business machinery and equipment credit; cannot be combined same year)
• Kansas Schedule K-50 (Oil Lease Working Interest Credit)

Subject

Oil Lease Working Interest Credit

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 99-03

Original ruling text

Notice
Notice Number: 99-03
Tax Type: Corporate Income Tax; Individual Income Tax; Property Tax
Brief Description: Oil Lease Working Interest Credit (Senate Bill 45)
Keywords:
Effective Date: 05/27/1999
Approval Date: 05/27/1999

Body:
NOTICE 99-03
Oil Lease Working Interest Credit

Senate Bill 45 was recently passed and signed into law providing tax relief to the oil industry. This legislation allows an income tax
credit to working interest owners equal to 75% of the 1998 personal property tax paid on the working interest of an oil lease, from
which the average daily production per well is 15 barrels or less. The property tax must have been levied for property tax year 1998
and timely paid during the income tax year in which the credit is taken. The amount of credit which exceeds the tax liability will be
refunded. The credit is effective for the tax year beginning after December 31, 1997.
For taxable years commencing after December 31, 1998, an income tax credit is allowed equal to 50% of the personal property tax
paid on the working interest of an oil lease, from which the average daily production per well is 15 barrels or less, when the price per
barrel of oil is $16 or less as shown for the applicable tax year in the oil and gas appraisal guide prescribed by the Director of
Property Valuation, Kansas Department of Revenue. The property tax must have been timely paid during the income tax year for
which the credit is taken. The amount of credit which exceeds the tax liability will be refunded.
Average daily production per well is defined as the annual lease production divided by 365 divided by the number of wells on that
lease. For the 75% tax credit, use 1997 production in the calculation of the average daily production per well. For 1999 and later
years, use the property tax year rendition production, e.g., 1999 property tax year use 1998 production year.
Last year, legislation was passed providing a 15% income tax credit for personal property tax paid on qualified business machinery
and equipment for the oil industry (K.S.A. 79-32,206). This credit allowed under K.S.A. 79-32,206 may not be taken in the same
year as the Oil Lease Working Interest Credit. Many working interest owners have taken advantage of the credit under K.S.A. 79-
32,206 by filing Schedule K-64 with their 1998 income tax return. With the passage of SB 45, eligible working interest owners may
file an amended 1998 return replacing the 15% credit, if claimed, with the Schedule K-50, Oil Lease Working Interest Credit.
A working interest owner who is an individual or corporation and has not filed their 1998 income tax return, may complete either
Schedule K-50 to claim their proportionate share of the 75% income tax credit or complete Schedule K-64 to claim their
proportionate share of the 15% income tax credit on qualified business machinery and equipment. (See Notice 99-01.)
In order for the working interest owner to claim the credit on the working interest of an oil lease, an operator must provide each
working interest owner with:

· a copy of the tax receipt showing timely payment of the property tax;
· the amount of tax paid on the working interest of an oil lease; 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. This information return, form K-64O, is enclosed. The operator must attach to the information return a copy of the tax
receipt showing timely payment of the property tax for each lease and a schedule showing the following for each lease:

· the amount of tax paid on the working interest of an oil lease;
· 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.
For working interest owners who are S-corporations, partnerships or limited liability companies, the individual shareholders, partners
or members will claim the credit on their tax returns as outlined below.

S-CORPORATIONS, Partnerships, and Limited Liability Companies

Shareholders, partners and members will claim the Oil Lease Working Interest credit on their tax returns by completing Kansas
Schedule K-50. 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 timely payment of the property tax;

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· a breakdown of the tax paid on the working interest of an oil lease; and
· the shareholder, partner or member’s proportionate share of the taxes paid.

TAXPAYER ASSISTANCE

To obtain Schedule K-50, Schedule K-64 or Schedule K-64O, call the Kansas Department of Revenue’s voice mail forms request
line at (785) 296-4937 or download them from our web site: www.ink.org/public/kdor. For more information about the credit or for
assistance in completing the form, contact any of the department’s offices listed below. Contact your county officials for information
or assistance in determining the amount of personal property taxes paid on the working interest of an oil lease.

    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         Finney 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 99-03
May 27, 1999

Date Composed: 05/27/1999 Date Modified: 10/10/2001

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