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AN ACT relating to severance taxation; exempting oil and gas produced
  from horizontal drilling therefrom; amending K.S.A. 1996 Supp. 79-
  4217 and repealing the existing section.
Be it enacted by the Legislature of the State of Kansas:
  Section 1.  K.S.A. 1996 Supp. 79-4217 is hereby amended to read as
follows: 79-4217. (a) There is hereby imposed an excise tax upon the
severance and production of coal, oil or gas from the earth or water in
this state for sale, transport, storage, profit or commercial use, subject to
the following provisions of this section. Such tax shall be borne ratably by
all persons within the term ``producer'' as such term is defined in K.S.A.
79-4216, and amendments thereto, in proportion to their respective ben-
eficial interest in the coal, oil or gas severed. Such tax shall be applied
equally to all portions of the gross value of each barrel of oil severed and
subject to such tax and to the gross value of the gas severed and subject
to such tax. The rate of such tax shall be 8% of the gross value of all oil
or gas severed from the earth or water in this state and subject to the tax
imposed under this act. The rate of such tax with respect to coal shall be
$1 per ton. For the purposes of the tax imposed hereunder the amount
of oil or gas produced shall be measured or determined: (1) In the case
of oil, by tank tables compiled to show 100% of the full capacity of tanks
without deduction for overage or losses in handling; allowance for any
reasonable and bona fide deduction for basic sediment and water, and
for correction of temperature to 60 degrees Fahrenheit will be allowed;
and if the amount of oil severed has been measured or determined by
tank tables compiled to show less than 100% of the full capacity of tanks,
such amount shall be raised to a basis of 100% for the purpose of the tax
imposed by this act; and (2) in the case of gas, by meter readings showing
100% of the full volume expressed in cubic feet at a standard base and
flowing temperature of 60 degrees Fahrenheit, and at the absolute pres-
sure at which the gas is sold and purchased; correction to be made for
pressure according to Boyle's law, and used for specific gravity according
to the gravity at which the gas is sold and purchased, or if not so specified,
according to the test made by the balance method.
  (b)  The following shall be exempt from the tax imposed under this
section:
  (1)  The severance and production of gas which is: (A) Injected into
the earth for the purpose of lifting oil, recycling or repressuring; (B) used
for fuel in connection with the operation and development for, or pro-
duction of, oil or gas in the lease or production unit where severed; (C)
lawfully vented or flared; (D) severed from a well having an average daily
production during a calendar month having a gross value of not more
than $81 per day, which well has not been significantly curtailed by reason
of mechanical failure or other disruption of production; in the event that
the production of gas from more than one well is gauged by a common
meter, eligibility for exemption hereunder shall be determined by com-
puting the gross value of the average daily combined production from all
such wells and dividing the same by the number of wells gauged by such
meter; (E) inadvertently lost on the lease or production unit by reason of
leaks, blowouts or other accidental losses; (F) used or consumed for do-
mestic or agricultural purposes on the lease or production unit from which
it is severed; or (G) placed in underground storage for recovery at a later
date and which was either originally severed outside of the state of Kansas,
or as to which the tax levied pursuant to this act has been paid;
  (2)  the severance and production of oil which is: (A) From a lease or
production unit whose average daily production is two barrels or less per
producing well, which well or wells have not been significantly curtailed
by reason of mechanical failure or other disruption of production; (B)
from a lease or production unit, the producing well or wells upon which
have a completion depth of 2,000 feet or more, and whose average daily
production is three barrels or less per producing well or, if the price of
oil as determined pursuant to subsection (d) is $30 or less, whose average
daily production is four barrels or less per producing well, or, if the price
of oil as determined pursuant to subsection (d) is $24 or less, whose
average daily production is five barrels or less per producing well, or, if
the price of oil as determined pursuant to subsection (d) is $16 or less,
whose average daily production is six barrels or less per producing well,
or, if the price of oil as determined pursuant to subsection (d) is $10 or
less, whose average daily production is seven barrels or less per producing
well, which well or wells have not been significantly curtailed by reason
of mechanical failure or other disruption of production; (C) from a lease
or production unit, whose production results from a tertiary recovery
process. ``Tertiary recovery process'' means the process or processes de-
scribed in subparagraphs (1) through (9) of 10 C.F.R. 212.78(c) as in
effect on June 1, 1979; (D) from a lease or production unit, the producing
well or wells upon which have a completion depth of less than 2,000 feet
and whose average daily production resulting from a water flood process,
is three barrels or less per producing well, which well or wells have not
been significantly curtailed by reason of mechanical failure or other dis-
ruption of production; (E) from a lease or production unit, the producing
well or wells upon which have a completion depth of 2,000 feet or more,
and whose average daily production resulting from a water flood process,
is four barrels or less per producing well or, if the price of oil as deter-
mined pursuant to subsection (d) is $30 or less, whose average daily pro-
duction is five barrels or less per producing well, or, if the price of oil as
determined pursuant to subsection (d) is $24 or less, whose average daily
production is six barrels or less per producing well, or, if the price of oil
as determined pursuant to subsection (d) is $16 or less, whose average
daily production is seven barrels or less per producing well, or, if the price
of oil as determined pursuant to subsection (d) is $10 or less, whose
average daily production is eight barrels or less per producing well, which
well or wells have not been significantly curtailed by reason of mechanical
failure or other disruption of production; (F) test, frac or swab oil which
is sold or exchanged for value; or (G) inadvertently lost on the lease or
production unit by reason of leaks or other accidental means;
  (3) (A)  any taxpayer applying for an exemption pursuant to subsec-
tion (b)(2)(A) and (B) shall make application annually to the director of
taxation therefor. Exemptions granted pursuant to subsection (b)(2)(A)
and (B) shall be valid for a period of one year following the date of cer-
tification thereof by the director of taxation; (B) any taxpayer applying for
an exemption pursuant to subsection (b)(2)(D) or (E) shall make appli-
cation annually to the director of taxation therefor. Such application shall
be accompanied by proof of the approval of an application for the utili-
zation of a water flood process therefor by the corporation commission
pursuant to rules and regulations adopted under the authority of K.S.A.
55-152 and amendments thereto and proof that the oil produced there-
from is kept in a separate tank battery and that separate books and records
are maintained therefor. Such exemption shall be valid for a period of
one year following the date of certification thereof by the director of
taxation;
  (4)  the severance and production of gas or oil from any pool from
which oil or gas was first produced on or after April 1, 1983, as determined
by the state corporation commission and certified to the director of tax-
ation, and continuing for a period of 24 months from the month in which
oil or gas was first produced from such pool as evidenced by an affidavit
of completion of a well, filed with the state corporation commission and
certified to the director of taxation. Exemptions granted for production
from any well pursuant to this paragraph shall be valid for a period of 24
months following the month in which oil or gas was first produced from
such pool. The term ``pool'' means an underground accumulation of oil
or gas in a single and separate natural reservoir characterized by a single
pressure system so that production from one part of the pool affects the
reservoir pressure throughout its extent;
  (5)  the severance and production of oil or gas from a three-year in-
active well, as determined by the state corporation commission and cer-
tified to the director of taxation, for a period of 10 years after the date of
receipt of such certification. As used in this paragraph, ``three-year in-
active well'' means any well that has not produced oil or gas in more than
one month in the three years prior to the date of application to the state
corporation commission for certification as a three-year inactive well. An
application for certification as a three-year inactive well shall be in such
form and contain such information as required by the state corporation
commission, and shall be made prior to July 1, 1996. The commission
may revoke a certification if information indicates that a certified well was
not a three-year inactive well or if other lease production is credited to
the certified well. Upon notice to the operator that the certification for a
well has been revoked, the exemption shall not be applied to the pro-
duction from that well from the date of revocation; and
  (6)  the severance and production of oil or gas in association with a
horizontal drilling process pursuant to a drilling permit issued therefor
by the state corporation commission; and
  (6) (7)  for the calendar year 1988, and any year thereafter, the sev-
erance or production of the first 350,000 tons of coal from any mine as
certified by the state geological survey.
  (c)  No exemption shall be granted pursuant to subsection (b)(3) or
  (4) to any person who does not have a valid operator's license issued by
the state corporation commission, and no refund of tax shall be made to
any taxpayer attributable to any production in a period when such tax-
payer did not hold a valid operator's license issued by the state corporation
commission.
  (d)  On April 15, 1988, and on April 15 of each year thereafter, the
secretary of revenue shall determine from statistics compiled and pro-
vided by the United States department of energy, the average price per
barrel paid by the first purchaser of crude oil in this state for the six-
month period ending on December 31 of the preceding year. Such price
shall be used for the purpose of determining exemptions allowed by sub-
section (b)(2)(B) or (E) for the twelve-month period commencing on May
1 of such year and ending on April 30 of the next succeeding year.
  Sec. 2.  K.S.A. 1996 Supp. 79-4217 is hereby repealed.
  Sec. 3.  This act shall take effect and be in force from and after its
publication in the statute book.