As Amended by Senate Committee on

Assessment and Taxation


S.B. 603 as amended would exempt from the severance tax for a period of seven years the incremental production resulting from a production enhancement project begun on or after July 1, 1998.

Incremental severance and production would be defined as production in excess of base production. Base production would mean the average monthly amount of production for the 12-month period immediately prior to the project beginning date, minus the monthly rate of production decline. The monthly rate of production decline would be determined with reference to the same 12-month period used to determine the base production. The monthly rate of production decline would be continued as the decline that would have occurred except for the enhancement project.

The credit would not apply in any fiscal year if in the preceding calendar year the price exceeded, in the case of oil, $20.00 per barrel; or, in the case of natural gas, $2.50 per Mcf.

The Kansas Corporation Commission (KCC) would be required to adopt rules and regulations necessary for the administration of the bill. Any taxpayer applying for the exemption would provide a KCC certification that the exempt production results from a production enhancement project and certification of the base production and rate of decline to be applied. A credit would be provided for any taxes that had already been paid on incremental production.


This bill was requested and supported by Senator Morris. Other proponents included representatives of Amoco Oil Corporation, the Kansas Independent Oil and Gas Association, and the Eastern Kansas Oil and Gas Association. As introduced, the bill would have exempted the increase in production for the lesser of ten years or until the costs of the enhancement project had been recovered and would have exempted natural gas used for irrigation. The Committee amended the bill to remove the proposed exemption for irrigation; limit the exemption to seven years; to remove the reference to cost recovery; to require the KCC to adopt necessary rules and regulations; and to define terms used in determining the increase in production. The Committee also added language to terminate the credits if prices rise above the amounts shown above.

According to the Department of Revenue, S.B. 603 as amended would reduce receipts from the severance tax by approximately $1.25 million in FY 1999 and by approximately $3.31 million in FY 2000. Such receipts are credited 93 percent to the State General Fund (SGF) and 7 percent to the County Mineral Production Tax Fund (CMPTF) for distribution to counties and unified school districts in producing areas. The reduction to the SGF would thus be approximately $1.16 million in FY 1999 and $3.08 million in FY 2000, and the reduction to the CMPTF would be approximately $0.09 million in FY 1999 and $0.22 million in FY 2000.

1. *Supplemental notes are prepared by the Legislative Research Department and do not express legislative intent. The supplemental note and fiscal note for this bill may be accessed on the Internet at