Session of 2000
Substitute for SENATE BILL No. 571
By Committee on Energy and Natural Resources
3-28
9 AN ACT
concerning natural gas; authorizing certain refunds and reim-
10 bursements of refunds
of certain ad valorem tax reimbursements; au-
11 thorizing the issuance
of bonds and imposing a tax on certain trans-
12 portation of natural
gas.
13
14 WHEREAS, Since 1974,
the Federal Energy Regulatory Commission
15 (FERC) and its predecessor, the Federal
Power Commission, had al-
16 lowed natural gas producers and royalty
owners of Kansas natural gas to
17 include the cost of state ad valorem taxes
in their rates regulated by the
18 FERC; and
19 WHEREAS, In 1983, a
petition challenging the inclusion of the costs
20 of ad valorem taxes in rates was filed with
FERC and FERC affirmed its
21 prior rulings allowing recovery of those
costs; and
22 WHEREAS, After the
D.C. Circuit Court in 1988 ordered FERC to
23 review its rulings, FERC reversed itself in
1993 and ordered the payment
24 of refunds retroactive to the year 1988;
and
25 WHEREAS, Kansas
producers and royalty owners paid the refunds
26 ordered, including interest, but in 1996
the D.C. Circuit Court reversed
27 the FERC decision and required instead
payment of refunds, including
28 interest, retroactive to any recovery of
the ad valorem tax after October
29 4, 1983, the time of filing of the initial
petition in the case; and
30 WHEREAS, The tax
policy of the State of Kansas has been based on
31 the assumption that natural gas producers
and royalty owners would be
32 allowed to recover both ad valorem and
severance tax as a cost of pro-
33 duction; and
34 WHEREAS, To effectuate
that longstanding state policy and to carry
35 out the intent of the Kansas Legislature in
adopting that policy: Now,
36 therefore,
37 Be it enacted by the Legislature of the
State of Kansas:
38 Section
1. As used in this act:
39
(a) ``Commission'' means the state corporation commission.
40 (b) ``Director''
means the director of taxation of the department of
41 revenue.
42 (c) ``Natural
gas'' has the meaning provided by K.S.A. 55-1201, and
2
1 amendments thereto.
2
(d) ``Person'' means any individual, corporation, limited
liability com-
3 pany, partnership, association or
other legal entity.
4
(e) ``Pipeline'' means a natural gas company transporting
natural gas
5 in interstate commerce subject to the
jurisdiction of the federal energy
6 regulatory commission (FERC) and a
company transporting gas in intra-
7 state commerce subject to the
jurisdiction of the state corporation com-
8 mission but shall not mean a person
engaged in the local distribution of
9 natural gas or in the gathering or
production or sale of natural gas.
10 (f) ``Producer''
means a person who made a ``first sale'' of natural gas,
11 as that term is defined in the federal
natural gas policy act of 1978, from
12 one or more wells in Kansas, including any
predecessors, successors and
13 royalty owners, and against whom a pipeline
has claimed that refunds and
14 interest associated with the ad valorem tax
is due and owing.
15 Sec. 2. (a)
(1) Any producer may file with the commission a claim
16 for payment to cover any claims of refunds,
and any interest thereon,
17 which the producer, pursuant to FERC orders
or proceedings, has paid
18 to pipelines for reimbursement for Kansas
ad valorem taxes in connection
19 with the first sale of natural gas.
20 (2) Any pipeline
may file with the commission a claim for payment
21 of refunds, and any interest thereon,
pursuant to orders or proceedings
22 of FERC, for reimbursement for Kansas ad
valorem taxes, provided that
23 the pipeline executes a release,
satisfactory to the commission, that re-
24 lieves the producer and any associated
royalty owner from all liability for
25 any claims for such refunds and
interest.
26 (b) Each claim
filed pursuant to subsection (a) shall be verified and
27 submitted to the commission upon forms
prescribed and furnished by
28 the commission and shall be accompanied by
such additional documen-
29 tation as required by the commission to
determine eligibility for payment
30 of the claim. The commission shall review
each claim and shall approve
31 payment to each eligible claimant.
32 (c) The
commission may adopt rules and regulations as necessary to
33 administer the provisions of this section,
including, but not limited to,
34 terms of eligibility. The commission, in
its discretion, may approve pay-
35 ment only for claims for refunds, without
interest. If, for any reason pay-
36 ments for only refunds do not operate to
extinguish all liability of pro-
37 ducers the commission may approve payment
to cover claims of interest
38 as well.
39 Sec. 3. (a)
There is hereby established in the state treasury the nat-
40 ural gas producer ad valorem tax refund and
bond retirement fund. The
41 fund shall consist of:
42 (1) Moneys
credited to the fund from proceeds derived from the sale
43 of bonds issued by the Kansas development
finance authority pursuant
3
1 to this act;
2 (2) revenue
collected from the tax imposed by this act;
3
(3) interest credited to the fund pursuant to subsection (c);
and
4 (4) any
amounts appropriated, contributed or otherwise made avail-
5 able for the purposes of the
fund.
6 (b) On or
before the 10th of each month, the director of accounts
7 and reports shall transfer from the
state general fund to the natural gas
8 producer ad valorem tax refund and
bond retirement fund interest earn-
9 ings based on:
10 (1) The average
daily balance of moneys in the natural gas producer
11 ad valorem tax refund and bond retirement
fund for the preceding month;
12 and
13 (2) the net
earnings rate for the pooled money investment portfolio
14 for the preceding month.
15 (c) Moneys in the
natural gas producer ad valorem tax refund and
16 bond retirement fund shall be utilized
exclusively for the following
17 purposes:
18 (1) To pay
qualifying claims pursuant to section 2, and amendments
19 thereto; and
20 (2) as a source
of revenue and security for the payment of principal
21 and interest on bonds issued under the
provisions of this act.
22 (d) All
expenditures from the natural gas producer ad valorem tax
23 refund and bond retirement fund shall be
made in accordance with ap-
24 propriation acts upon warrants of the
director of accounts and reports
25 issued pursuant to vouchers approved by the
chairperson of the commis-
26 sion or the chairperson's designee for the
purposes set forth in this
27 section.
28 Sec. 4. (a)
For the purpose of paying refunds on behalf of producers
29 pursuant to this act, the commission may
enter into agreements with the
30 Kansas development finance authority to
issue revenue bonds in an
31 amount not exceeding an amount equal to
$360,000,000 plus all amounts
32 required for costs of the bond issuance.
The activities of the commission
33 in administering and performing the powers,
duties and functions pre-
34 scribed by the provisions of this act from
the proceeds of bonds issued
35 for such purpose by the Kansas development
finance authority are hereby
36 approved for the purposes of subsection (b)
of K.S.A. 74-8905, and
37 amendments thereto, and the authorization
of the issuance of such bonds
38 by the Kansas development finance authority
in accordance with that
39 statute. The provisions of subsection (a)
of K.S.A. 74-8905, and amend-
40 ments thereto, shall not prohibit the
issuance of bonds for such purposes
41 when so authorized and any such issuance of
bonds is exempt from the
42 provisions of subsection (a) of K.S.A.
74-8905, and amendments thereto.
43 (b) To the extent
provided in the agreement entered into by the com-
4
1 mission and the authority, proceeds
derived from the sale of revenue
2 bonds issued pursuant to this section
shall be deposited in the state treas-
3 ury and credited to the natural gas
producer ad valorem tax refund and
4 bond retirement fund.
5 (c) Revenue
bonds, including refunding revenue bonds, issued here-
6 under shall not constitute an
indebtedness of the state of Kansas, nor
7 shall they constitute indebtedness
within the meaning of any constitu-
8 tional or statutory provision
limiting the incurring of indebtedness.
9 (d) Revenue
bonds, including refunding revenue bonds, issued here-
10 under and the income derived therefrom are
and shall be exempt from
11 all state, county and municipal taxation in
the state of Kansas, except
12 Kansas estate taxes.
13 Sec. 5. (a)
For the privilege of transporting natural gas from, within
14 and through this state by pipeline and for
the purpose of raising revenue
15 for payment of principal and interest due
upon revenue bonds issued
16 pursuant to this act, there is imposed a
tax at the rate of $.02 per thousand
17 cubic feet of natural gas so transported by
pipeline. Such tax shall not
18 apply to the local distribution of natural
gas or to the production and
19 gathering of natural gas. Such tax shall be
paid by the pipelines, provided,
20 however, that where natural gas is
transported through interconnections
21 between two pipelines, the tax will be paid
by the last transporting pipe-
22 line prior to either leaving the state or
being delivered to a local distri-
23 bution company or direct sale customer. The
tax shall be remitted to the
24 director by the pipeline on or before the
last day of each month. Such
25 remittance shall be accompanied by a return
upon forms prescribed and
26 furnished by the director.
27 (b) The director
may grant a reasonable extension of time for filing
28 any return and remittance of taxes due
under this act upon good cause
29 shown. Interest shall be charged at the
rate prescribed by subsection (a)
30 of K.S.A. 79-2968, and amendments thereto,
for the period of such ex-
31 tension for the remittance of taxes.
32 Sec.
6. When requested by the director, any pipeline
transporting
33 natural gas from, within or through the
state of Kansas shall be required
34 to furnish the director such information
relative to the transportation of
35 such gas as the director may require. The
director shall have authority to:
36 (a) Inspect bills
of lading, waybills, meter or other charts, documents,
37 books and records relating to the
transportation of natural gas by the
38 transporter; and
39 (b) demand the
production of such bills of lading, waybills, charts,
40 documents, books and records relating to
the transportation of natural
41 gas at any point in the state of Kansas
designated by the director.
42 Sec. 7. (a)
If any taxes imposed under this act and determined and
43 assessed by the director are unpaid: (1)
Not due to negligence or to in-
5
1 tentional disregard of this act or
rules and regulations of 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
of the secretary, but without intent to
6 defraud, a penalty of 10% of the
amount of such taxes shall be added,
7 together with interest at the rate
per month prescribed by subsection (a)
8 of K.S.A. 79-2968, and amendments
thereto, from the date the tax was
9 due until paid; or (3) due to fraud
with intent to evade the tax imposed
10 by this act, there shall be added thereto a
penalty of 50% of the amount
11 of such tax, together with interest at the
rate per month prescribed by
12 subsection (a) of K.S.A. 79-2968, and
amendments thereto, from the date
13 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) The director,
in the exercise of discretion and upon making a
19 record of the reason therefor, may waive or
reduce any of the penalties
20 provided by subsection (a)(1), (a)(2) or
(b) if, in the judgment of the
21 director, there is due and reasonable cause
that the taxes are unpaid or
22 that the return is not filed.
23 (d) In addition
to any other penalty provided by this section, it is a
24 class C misdemeanor for any person to: (1)
Fail to make a return or pay
25 any tax as required by this act; (2) make a
false or fraudulent return or
26 fail to keep any books or records required
pursuant to this act; (3) willfully
27 violate any rules and regulations adopted
by the secretary for the enforce-
28 ment and administration of this act; (4)
aid and abet another in attempting
29 to evade the payment of any tax imposed by
this act; or (5) violate any
30 other provision of this act.
31 (e) The director
shall examine all returns filed under the provisions
32 of this act and shall issue notices and
final determinations of tax liability
33 hereunder in the manner prescribed by
K.S.A. 79-3226, and amendments
34 thereto.
35 Sec.
8. Each pipeline shall make and keep a complete and
accurate
36 record in the form required by the director
showing the gross quantity
37 of natural gas transported, and such other
information as required by the
38 director for the purposes of administering
and enforcing the tax imposed
39 by this act. Such records shall at all
times during business hours of the
40 day be available for and subject to
inspection by the director, or the
41 director's duly authorized agents and
employees, for a period of three
42 years from the last day of the calendar
year to which the records pertain.
43 Such records shall be preserved during the
entire period during which
6
1 they are subject to inspection by the
director, unless the director in writ-
2 ing previously authorized their
disposal.
3 The amount of
taxes imposed by this act shall be assessed within three
4 years after the return is filed. In
the case of a false or fraudulent return
5 with intent to evade tax, the tax may
be assessed or a proceeding in court
6 for collection of such tax may be
begun at any time, within two years from
7 the discovery of such fraud. The
provisions of K.S.A. 79-3226, and amend-
8 ments thereto, relating to procedures
for contesting a proposed assess-
9 ment of additional tax or the denial
of a refund shall apply as if set forth
10 in this section. No refund shall be allowed
by the director after a period
11 of three years from the date the return was
filed or after one year from
12 the date the assessment is made, whichever
is later, unless before the
13 expiration of such period a claim therefor
is filed by the taxpayer. No suit
14 or action to recover on any claim for
refund shall be commenced earlier
15 than six months after the date such claim
is filed with the director.
16 At any time before the
expiration of time prescribed in this section for
17 the assessment of additional tax or the
filing of a claim for refund, the
18 director may enter into a written agreement
with the taxpayer consenting
19 to the extension of the periods of
limitations for the assessment of tax or
20 for the filing of a claim for refund. The
extended periods agreed upon
21 may be extended by subsequent written
agreements made before the
22 expiration of the extended periods
previously agreed upon. In consider-
23 ation of such agreement or agreements,
interest due in excess of 48
24 months on any additional tax shall be
waived.
25 Sec. 9. (a)
All revenue collected or received by the director from the
26 tax imposed by this act shall be remitted
daily to the state treasurer. Upon
27 receipt of a remittance, the state
treasurer shall deposit the entire amount
28 in the state treasury. The state treasurer
shall first credit such amount
29 thereof as the director shall order to the
natural gas pipeline privilege tax
30 refund fund established by subsection (b).
The state treasurer shall credit
31 the remainder to the natural gas producer
ad valorem tax refund and
32 bond retirement fund established by section
3, and amendments thereto.
33 (b) The natural
gas pipeline privilege tax refund fund not to exceed
34 $50,000 is hereby established in the state
treasury for the prompt payment
35 of refunds of the tax imposed by this act.
Within the limit set by this
36 section, such fund shall be in such amount
as the director determines
37 necessary to meet current refunding
requirements under this act.
38 Sec.
10. The secretary of revenue shall administer the provisions
of
39 sections 5 through 9, and amendments
thereto, and may adopt rules and
40 regulations to administer and enforce the
provisions of such sections.
41 Sec. 11. This act shall
take effect and be in force from and after its
42 publication in the Kansas register.