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 9  AN ACT relating to severance taxation; amending K.S.A. 79-4225 and
10    K.S.A. 1996 Supp. 77-549 and 79-4216 and repealing the existing
11    sections.
12
13  Be it enacted by the Legislature of the State of Kansas:
14    Section 1.  K.S.A. 1996 Supp. 79-4216 is hereby amended to read as
15  follows: 79-4216. As used in this act, unless the context clearly requires
16  otherwise, the following words and phrases shall have the meanings as-
17  cribed to them herein:
18    (a)  ``Barrel'' for oil measurement means a barrel of 42 U.S. gallons of
19  231 cubic inches per gallon, computed at a temperature of 60 degrees
20  Fahrenheit.
21    (b)  ``Director'' means the director of taxation.
22    (c)  ``Gas'' means natural gas taken from below the surface of the earth
23  or water in this state, regardless of whether from a gas well or from a well
24  also productive of oil or any other product.
25    (d)  ``Gross value'' means the sale price of oil or gas at the time of
26  removal of the oil or gas from the lease or production unit and if oil or
27  gas is exchanged for something other than cash, or if no sale occurs at
28  the time of removal or if the director determines that the relationship
29  between the buyer and the seller is such that the consideration paid, if
30  any, is not indicative of the true value or market price, then the director
31  shall determine the value of the oil or gas subject to tax, based on the
32  cash price paid to one or more producers for the oil or gas or based on
33  the cash price paid to producers for like quality oil or gas in the vicinity
34  of the lease or production unit at the time of the removal of the oil or
35  gas from the lease or production unit. Notwithstanding the foregoing, if
36  no sale of gas occurs at the time of removal and such gas is not stored,
37  then the gross value of gas for the purpose of taxation under this act shall
38  be the price for which such gas is sold at the time of sale if such sale is
39  not between related parties.
40    (e)  ``Oil'' means petroleum, or other crude oil, condensate, casing-
41  head gasoline, or other mineral oil which is severed or withdrawn from
42  below the surface of the soil or water in this state.
43    (f)  ``Operator'' means the person primarily responsible for the man-
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 1  agement and operation of coal, oil or gas productions from a lease, pro-
 2  duction unit or mine.
 3    (g)  ``Person'' means any natural person, firm, copartnership, joint
 4  venture, association, corporation, estate, trust or any other group or com-
 5  bination acting as a unit, and the plural as well as the singular number.
 6    (h)  ``Producer'' means any person owning, controlling, managing or
 7  leasing any coal, oil or gas property or oil or gas well or coal or salt mine,
 8  and any person who severs in any manner any coal, oil or gas in this state,
 9  and shall include any person owning any direct and beneficial interest in
10  any coal, oil or gas produced, whether severed by such person or some
11  other person on their behalf, either by lease, contract or otherwise, in-
12  cluding a royalty owner.
13    (i)  ``Remove'' or ``removal'' means the physical transportation of coal,
14  oil or gas off of the lease or production unit or from the mine where
15  severed; and if the manufacture or conversion of crude oil or natural gas
16  into refined products occurs on the premises where severed, oil or gas
17  shall be deemed to have been removed on the date such manufacture or
18  conversion begins.
19    (j)  ``Secretary'' means the secretary of revenue.
20    (k)  ``Severed'' or ``severing'' means: (1) The production of oil through
21  extraction or withdrawal of the same from below the surface of the soil
22  or water, whether such extraction or withdrawal shall be by natural flow,
23  mechanical flow, forced flow, pumping or any other means employed to
24  get the oil from below the surface of the soil or water and shall include
25  the withdrawal by any means whatsoever of oil upon which the tax has
26  not been paid, from any surface reservoir, natural or artificial, or from a
27  water surface; (2) the production of gas through the extraction or with-
28  drawal of the same by any means whatsoever, from below the surface of
29  the earth or water; and (3) the physical removal of coal from the earth.
30    (l)  ``Taxpayer'' means any person liable for the taxes imposed by this
31  act.
32    (m)  ``Disruption of production'' means, in the case of oil, a continuous
33  24-hour period during which a well is not producing. Circulating and
34  missed production days shall be considered production days if the oper-
35  ator can demonstrate that any lost production is subsequently recovered
36  during a later production day. In the case of gas, a continuous one-hour
37  period during which a well is not open to the pipeline shall be deemed
38  to be a disruption of production. Missed production hours shall be con-
39  sidered production hours if the operator can demonstrate that any lost
40  production is subsequently recovered during later production hours.
41    Sec. 2.  K.S.A. 79-4225 is hereby amended to read as follows: 79-
42  4225. (a) If any taxes imposed under this act and determined and assessed
43  by the director are unpaid: (1) Not due to negligence or to intentional
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 1  disregard of this act or rules and regulations promulgated by the secretary,
 2  interest on such taxes shall be added at the rate per month prescribed by
 3  subsection (a) of K.S.A. 79-2968, and amendments thereto, from the date
 4  the tax was due until paid; (2) due to negligence or to intentional disregard
 5  of this act or rules and regulations promulgated by the secretary, but
 6  without intent to defraud, a penalty of 10% of the amount of such taxes
 7  shall be added, together with interest at the rate per month prescribed
 8  by subsection (a) of K.S.A. 79-2968, and amendments thereto, from the
 9  date the tax was due until paid; (3) due to fraud with intent to evade the
10  tax imposed by this act, there shall be added thereto a penalty of 50% of
11  the amount of such tax, together with interest at the rate per month
12  prescribed by subsection (a) of K.S.A. 79-2968, and amendments thereto,
13  from the date the tax was due until paid.
14    (b)  If any person fails or refuses to make any return, when required
15  to do so under the provisions of this act, such person shall be subject to
16  a penalty of $25 per day for each return which such person fails or refuses
17  to file.
18    (c)  Whenever, in the judgment of the director, the failure of any
19  person to comply with the provisions of subsection (a)(1), (a)(2), and (b)
20  of this section, was due to reasonable cause, the director may, in the
21  exercise of discretion, waive or reduce any of the penalties upon making
22  a record of the reason therefor.
23    (d)  In addition to all other penalties herein provided, any person who
24  fails to make a return, or to pay any tax herein provided, or who makes a
25  false or fraudulent return, or fails to keep any books or records prescribed
26  by this act, or who willfully violates any rules and regulations promulgated
27  by the secretary for the enforcement and administration of this act, or
28  who aids and abets another in attempting to evade the payment of any
29  tax imposed by this act, or who violates any other provisions of this act,
30  shall, upon conviction thereof, be guilty of a class C misdemeanor.
31    (e)  The director of taxation shall examine all returns filed under the
32  provision of this act, and shall issue notices and final determinations of
33  tax liability hereunder in the manner prescribed by K.S.A. 79-3226, and
34  amendments thereto, relating to income taxes.
35    Sec. 3.  K.S.A. 1996 Supp. 77-549 is hereby amended to read as fol-
36  lows: 77-549. (a) The filing of a return with the director of taxation under
37  article 15, 32, 33, 34, 36, 37, 41, 42 or 47 of chapter 79 of the Kansas
38  Statutes Annotated, and amendments thereto, shall not be deemed an
39  application for an order under the Kansas administrative procedure act.
40    (b)  A determination by the division of taxation or the audit services
41  bureau of the department of revenue concerning tax liability under article
42  15, 32, 33, 34, 36, 37, 41, 42 or 47 of chapter 79 of the Kansas Statutes
43  Annotated, and amendments thereto, which is made prior to the oppor-
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 1  tunity for a hearing before the director of taxation on such tax liability,
 2  shall not require an adjudicative proceeding under the Kansas adminis-
 3  trative procedure act.
 4    (c)  For purposes of the Kansas administrative procedure act, the di-
 5  rector of taxation shall be deemed the agency head in regard to orders
 6  rendered by the director under chapter 79 of the Kansas Statutes An-
 7  notated, and amendments thereto.
 8    (d)  Final orders of the director of taxation pursuant to K.S.A. 77-526,
 9  and amendments thereto, shall be rendered in writing and served within
10  120 days after conclusion of the hearing or after submission of proposed
11  findings in accordance with subsection (f) of K.S.A. 77-526, and amend-
12  ments thereto, unless this period is waived or extended with the written
13  consent of all parties or for good cause shown. If extended for good cause,
14  such good cause shall be set forth in writing on or before the expiration
15  of the 120 days.
16    Sec. 4.  K.S.A. 79-4225 and K.S.A. 1996 Supp. 77-549 and 79-4216
17  are hereby repealed.
18    Sec. 5.  This act shall take effect and be in force from and after its
19  publication in the statute book.