Session of 2000
HOUSE BILL No. 3050 By Committee on Appropriations 3-30

10 AN ACT concerning natural gas; authorizing certain refunds and reim-
11 bursements of refunds of certain ad valorem tax reimbursements; au-
12 thorizing the issuance of bonds and imposing a tax on certain trans-
13 portation of natural gas.
14
15 WHEREAS, Since 1974, the Federal Energy Regulatory Commission
16 (FERC) and its predecessor, the Federal Power Commission, had al-
17 lowed natural gas producers and royalty owners of Kansas natural gas to
18 include the cost of state ad valorem taxes in their rates regulated by the
19 FERC; and
20 WHEREAS, In 1983, a petition challenging the inclusion of the costs
21 of ad valorem taxes in rates was filed with FERC and FERC affirmed its
22 prior rulings allowing recovery of those costs; and
23 WHEREAS, After the D.C. Circuit Court in 1988 ordered FERC to
24 review its rulings, FERC reversed itself in 1993 and ordered the payment
25 of refunds retroactive to the year 1988; and
26 WHEREAS, Kansas producers and royalty owners paid the refunds
27 ordered, including interest, but in 1996 the D.C. Circuit Court reversed
28 the FERC decision and required instead payment of refunds, including
29 interest, retroactive to any recovery of the ad valorem tax after October
30 4, 1983, the time of filing of the initial petition in the case; and
31 WHEREAS, The tax policy of the State of Kansas has been based on
32 the assumption that natural gas producers and royalty owners would be
33 allowed to recover both ad valorem and severance tax as a cost of pro-
34 duction; and
35 WHEREAS, To effectuate that longstanding state policy and to carry
36 out the intent of the Kansas Legislature in adopting that policy: Now,
37 therefore,
38
39 Be it enacted by the Legislature of the State of Kansas:
40 Section 1. As used in this act:
41 (a) ``Commission'' means the state corporation commission.
42 (b) ``Director'' means the director of taxation of the department of
43 revenue.

2
1 (c) ``Natural gas'' has the meaning provided by K.S.A. 55-1201, and
2 amendments thereto.
3 (d) ``Person'' means any individual, corporation, limited liability com-
4 pany, partnership, association or other legal entity.
5 (e) ``Pipeline'' means a natural gas company transporting natural gas
6 in interstate commerce subject to the jurisdiction of the federal energy
7 regulatory commission (FERC) and a company transporting gas in intra-
8 state commerce subject to the jurisdiction of the state corporation com-
9 mission but shall not mean a person engaged in the local distribution of
10 natural gas or in the gathering or production or sale of natural gas.
11 (f) ``Producer'' means a person who made a ``first sale'' of natural gas,
12 as that term is defined in the federal natural gas policy act of 1978, from
13 one or more wells in Kansas, including any predecessors, successors and
14 royalty owners, and against whom a pipeline has claimed that refunds and
15 interest associated with the ad valorem tax is due and owing.
16 Sec. 2. (a) (1) Any producer may file with the commission a claim
17 for payment to cover any claims of refunds, and any interest thereon,
18 which the producer, pursuant to FERC orders or proceedings, has paid
19 to pipelines for reimbursement for Kansas ad valorem taxes in connection
20 with the first sale of natural gas.
21 (2) Any pipeline may file with the commission a claim for payment
22 of refunds, and any interest thereon, pursuant to orders or proceedings
23 of FERC, for reimbursement for Kansas ad valorem taxes, provided that
24 the pipeline executes a release, satisfactory to the commission, that re-
25 lieves the producer and any associated royalty owner from all liability for
26 any claims for such refunds and interest.
27 (b) Each claim filed pursuant to subsection (a) shall be verified and
28 submitted to the commission upon forms prescribed and furnished by
29 the commission and shall be accompanied by such additional documen-
30 tation as required by the commission to determine eligibility for payment
31 of the claim. The commission shall review each claim and shall approve
32 payment to each eligible claimant.
33 (c) The commission may adopt rules and regulations as necessary to
34 administer the provisions of this section, including, but not limited to,
35 terms of eligibility. The commission, in its discretion, may approve pay-
36 ment only for claims for refunds, without interest. If, for any reason pay-
37 ments for only refunds do not operate to extinguish all liability of pro-
38 ducers the commission may approve payment to cover claims of interest
39 as well.
40 Sec. 3. (a) There is hereby established in the state treasury the nat-
41 ural gas producer ad valorem tax refund and bond retirement fund. The
42 fund shall consist of:
43 (1) Moneys credited to the fund from proceeds derived from the sale

3
1 of bonds issued by the Kansas development finance authority pursuant
2 to this act;
3 (2) revenue collected from the tax imposed by this act;
4 (3) interest credited to the fund pursuant to subsection (c); and
5 (4) any amounts appropriated, contributed or otherwise made avail-
6 able for the purposes of the fund.
7 (b) On or before the 10th of each month, the director of accounts
8 and reports shall transfer from the state general fund to the natural gas
9 producer ad valorem tax refund and bond retirement fund interest earn-
10 ings based on:
11 (1) The average daily balance of moneys in the natural gas producer
12 ad valorem tax refund and bond retirement fund for the preceding month;
13 and
14 (2) the net earnings rate for the pooled money investment portfolio
15 for the preceding month.
16 (c) Moneys in the natural gas producer ad valorem tax refund and
17 bond retirement fund shall be utilized exclusively for the following
18 purposes:
19 (1) To pay qualifying claims pursuant to section 2, and amendments
20 thereto; and
21 (2) as a source of revenue and security for the payment of principal
22 and interest on bonds issued under the provisions of this act.
23 (d) All expenditures from the natural gas producer ad valorem tax
24 refund and bond retirement fund shall be made in accordance with ap-
25 propriation acts upon warrants of the director of accounts and reports
26 issued pursuant to vouchers approved by the chairperson of the commis-
27 sion or the chairperson's designee for the purposes set forth in this
28 section.
29 Sec. 4. (a) For the purpose of paying refunds on behalf of producers
30 pursuant to this act, the commission may enter into agreements with the
31 Kansas development finance authority to issue revenue bonds in an
32 amount not exceeding an amount equal to $360,000,000 plus all amounts
33 required for costs of the bond issuance. The activities of the commission
34 in administering and performing the powers, duties and functions pre-
35 scribed by the provisions of this act from the proceeds of bonds issued
36 for such purpose by the Kansas development finance authority are hereby
37 approved for the purposes of subsection (b) of K.S.A. 74-8905, and
38 amendments thereto, and the authorization of the issuance of such bonds
39 by the Kansas development finance authority in accordance with that
40 statute. The provisions of subsection (a) of K.S.A. 74-8905, and amend-
41 ments thereto, shall not prohibit the issuance of bonds for such purposes
42 when so authorized and any such issuance of bonds is exempt from the
43 provisions of subsection (a) of K.S.A. 74-8905, and amendments thereto.

4
1 (b) To the extent provided in the agreement entered into by the com-
2 mission and the authority, proceeds derived from the sale of revenue
3 bonds issued pursuant to this section shall be deposited in the state treas-
4 ury and credited to the natural gas producer ad valorem tax refund and
5 bond retirement fund.
6 (c) Revenue bonds, including refunding revenue bonds, issued here-
7 under shall not constitute an indebtedness of the state of Kansas, nor
8 shall they constitute indebtedness within the meaning of any constitu-
9 tional or statutory provision limiting the incurring of indebtedness.
10 (d) Revenue bonds, including refunding revenue bonds, issued here-
11 under and the income derived therefrom are and shall be exempt from
12 all state, county and municipal taxation in the state of Kansas, except
13 Kansas estate taxes.
14 Sec. 5. (a) For the privilege of transporting natural gas from, within
15 and through this state by pipeline and for the purpose of raising revenue
16 for payment of principal and interest due upon revenue bonds issued
17 pursuant to this act, there is imposed a tax at the rate of $.02 per thousand
18 cubic feet of natural gas so transported by pipeline. Such tax shall not
19 apply to the local distribution of natural gas or to the production and
20 gathering of natural gas. Such tax shall be paid by the pipelines, provided,
21 however, that where natural gas is transported through interconnections
22 between two pipelines, the tax will be paid by the last transporting pipe-
23 line prior to either leaving the state or being delivered to a local distri-
24 bution company or direct sale customer. The tax shall be remitted to the
25 director by the pipeline on or before the last day of each month. Such
26 remittance shall be accompanied by a return upon forms prescribed and
27 furnished by the director.
28 (b) The director may grant a reasonable extension of time for filing
29 any return and remittance of taxes due under this act upon good cause
30 shown. Interest shall be charged at the rate prescribed by subsection (a)
31 of K.S.A. 79-2968, and amendments thereto, for the period of such ex-
32 tension for the remittance of taxes.
33 Sec. 6. When requested by the director, any pipeline transporting
34 natural gas from, within or through the state of Kansas shall be required
35 to furnish the director such information relative to the transportation of
36 such gas as the director may require. The director shall have authority to:
37 (a) Inspect bills of lading, waybills, meter or other charts, documents,
38 books and records relating to the transportation of natural gas by the
39 transporter; and
40 (b) demand the production of such bills of lading, waybills, charts,
41 documents, books and records relating to the transportation of natural
42 gas at any point in the state of Kansas designated by the director.
43 Sec. 7. (a) If any taxes imposed under this act and determined and

5
1 assessed by the director are unpaid: (1) Not due to negligence or to in-
2 tentional disregard of this act or rules and regulations of the secretary,
3 interest on such taxes shall be added at the rate per month prescribed by
4 subsection (a) of K.S.A. 79-2968, and amendments thereto, from the date
5 the tax was due until paid; (2) due to negligence or to intentional disregard
6 of this act or rules and regulations of the secretary, but without intent to
7 defraud, a penalty of 10% of the amount of such taxes shall be added,
8 together with interest at the rate per month prescribed by subsection (a)
9 of K.S.A. 79-2968, and amendments thereto, from the date the tax was
10 due until paid; or (3) due to fraud with intent to evade the tax imposed
11 by this act, there shall be added thereto a penalty of 50% of the amount
12 of such tax, together with interest at the rate per month prescribed by
13 subsection (a) of K.S.A. 79-2968, and amendments thereto, from the date
14 the tax was due until paid.
15 (b) If any person fails or refuses to make any return when required
16 to do so under the provisions of this act, such person shall be subject to
17 a penalty of $25 per day for each return which such person fails or refuses
18 to file.
19 (c) The director, in the exercise of discretion and upon making a
20 record of the reason therefor, may waive or reduce any of the penalties
21 provided by subsection (a)(1), (a)(2) or (b) if, in the judgment of the
22 director, there is due and reasonable cause that the taxes are unpaid or
23 that the return is not filed.
24 (d) In addition to any other penalty provided by this section, it is a
25 class C misdemeanor for any person to: (1) Fail to make a return or pay
26 any tax as required by this act; (2) make a false or fraudulent return or
27 fail to keep any books or records required pursuant to this act; (3) willfully
28 violate any rules and regulations adopted by the secretary for the enforce-
29 ment and administration of this act; (4) aid and abet another in attempting
30 to evade the payment of any tax imposed by this act; or (5) violate any
31 other provision of this act.
32 (e) The director shall examine all returns filed under the provisions
33 of this act and shall issue notices and final determinations of tax liability
34 hereunder in the manner prescribed by K.S.A. 79-3226, and amendments
35 thereto.
36 Sec. 8. Each pipeline shall make and keep a complete and accurate
37 record in the form required by the director showing the gross quantity
38 of natural gas transported, and such other information as required by the
39 director for the purposes of administering and enforcing the tax imposed
40 by this act. Such records shall at all times during business hours of the
41 day be available for and subject to inspection by the director, or the
42 director's duly authorized agents and employees, for a period of three
43 years from the last day of the calendar year to which the records pertain.

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1 Such records shall be preserved during the entire period during which
2 they are subject to inspection by the director, unless the director in writ-
3 ing previously authorized their disposal.
4 The amount of taxes imposed by this act shall be assessed within three
5 years after the return is filed. In the case of a false or fraudulent return
6 with intent to evade tax, the tax may be assessed or a proceeding in court
7 for collection of such tax may be begun at any time, within two years from
8 the discovery of such fraud. The provisions of K.S.A. 79-3226, and amend-
9 ments thereto, relating to procedures for contesting a proposed assess-
10 ment of additional tax or the denial of a refund shall apply as if set forth
11 in this section. No refund shall be allowed by the director after a period
12 of three years from the date the return was filed or after one year from
13 the date the assessment is made, whichever is later, unless before the
14 expiration of such period a claim therefor is filed by the taxpayer. No suit
15 or action to recover on any claim for refund shall be commenced earlier
16 than six months after the date such claim is filed with the director.
17 At any time before the expiration of time prescribed in this section for
18 the assessment of additional tax or the filing of a claim for refund, the
19 director may enter into a written agreement with the taxpayer consenting
20 to the extension of the periods of limitations for the assessment of tax or
21 for the filing of a claim for refund. The extended periods agreed upon
22 may be extended by subsequent written agreements made before the
23 expiration of the extended periods previously agreed upon. In consider-
24 ation of such agreement or agreements, interest due in excess of 48
25 months on any additional tax shall be waived.
26 Sec. 9. (a) All revenue collected or received by the director from the
27 tax imposed by this act shall be remitted daily to the state treasurer. Upon
28 receipt of a remittance, the state treasurer shall deposit the entire amount
29 in the state treasury. The state treasurer shall first credit such amount
30 thereof as the director shall order to the natural gas pipeline privilege tax
31 refund fund established by subsection (b). The state treasurer shall credit
32 the remainder to the natural gas producer ad valorem tax refund and
33 bond retirement fund established by section 3, and amendments thereto.
34 (b) The natural gas pipeline privilege tax refund fund not to exceed
35 $50,000 is hereby established in the state treasury for the prompt payment
36 of refunds of the tax imposed by this act. Within the limit set by this
37 section, such fund shall be in such amount as the director determines
38 necessary to meet current refunding requirements under this act.
39 Sec. 10. The secretary of revenue shall administer the provisions of
40 sections 5 through 9, and amendments thereto, and may adopt rules and
41 regulations to administer and enforce the provisions of such sections.
42 Sec. 11. This act shall take effect and be in force from and after its
43 publication in the Kansas register.