Printable Format79-331. Same; determination of value; changes in determination of value of production; limitations on information used to establish fair market value. (a) Except as otherwise provided in subsection (b), in determining the value of oil and gas leases or properties the appraiser shall take into consideration the age of the wells, the quality of oil or gas being produced therefrom, the nearness of the wells to market, the cost of operation, the character, extent and permanency of the market, the probable life of the wells, the quantity of oil or gas produced from the lease or property, the number of wells being operated, and such other facts as may be known by the appraiser to affect the value of the lease or property.
Whenever a change in any of the factors or figures used in determining the 8/8ths valuation of the production for any oil or gas lease or property is made pursuant to the tax equalization, tax protest or tax grievance proceedings, such change shall apply to the working interest, royalty interest, overriding royalty interest and production payments and, if applicable, a refund of taxes shall be made in the manner prescribed by K.S.A. 79-2005(l)(1), and amendments thereto.
(b) The valuation of the working interest and royalty interest, except valuation of equipment, of any original base lease or property producing oil or gas for the first time in economic quantities on and after July 1 of the calendar year preceding the year in which such property is first assessed shall be determined for the year in which such property is first assessed by determining the quantity of oil or gas such property would have produced during the entire year preceding the year in which such property is first assessed upon the basis of the actual production in such year and by multiplying the income and expenses that would have been attributable to such property at such production level, excluding equipment valuation thereof, if it had actually produced said entire year preceding the year in which such property is first assessed by 60%.
(c) The provisions of subsection (b) shall not apply in the case of any production from any direct offset well or any subsequent well on the same lease.
(d) (1) In order to clarify and express the intent of the legislature regarding the methodology utilized in the determination of fair market value of producing oil and gas leases for property tax purposes, it is hereby declared that the primary and predominant consideration in such determination is, has been and shall be the actual value of oil and gas production severed from the earth.
(2) Information used to establish the fair market value of producing oil and gas leases which commence production during the preceding calendar year shall be limited to any information regarding production prior to April 1 of the calendar year in which such property is assessed. Information used to establish the fair market value of any base lease or property producing oil and gas for the first time in economic quantities on and after October 1 of the calendar year preceding the year in which such property is first assessed shall be limited to any information regarding production prior to July 1 of the calendar year in which such property is assessed.
(e) The provisions of this act shall apply to all tax years commencing on and after December 31, 2016.
History: L. 1917, ch. 323, § 3; R.S. 1923, 79-331; L. 1969, ch. 432, § 1; L. 1979, ch. 310, § 1; L. 2000, ch. 47, § 1; L. 2005, ch. 204, § 1; L. 2016, ch. 112, § 7; July 1.
Law Review and Bar Journal References:
"Survey of Kansas Law: Taxation," Sandra Craig McKenzie and Virginia Ratzlaff, 33 K.L.R. 71, 75 (1984).
Attorney General's Opinions:
Subsection (b) is unconstitutional. 81-32.
CASE ANNOTATIONS
1. Leasing city owned property for oil and gas lost exemption. City of Arkansas City v. Board of County Commissioners, 197 Kan. 728, 729, 420 P.2d 1016.
2. Assessment and valuation of property are administrative in character; absent evidence that assessment was arrived at fraudulently, arbitrarily or capriciously, a difference of opinion as to value does not warrant judicial interference. Cities Service Oil Co. v. Murphy, 202 Kan. 282, 284, 287, 288, 293, 294, 447 P.2d 791.
3. Cited in determining tax status of certain municipally owned property. Board of Park Commissioners v. Board of County Commissioners, 206 Kan. 438, 439, 442, 480 P.2d 81.
4. Failure to consider requirements of section by assessor, assessment arbitrary and void. Angle v. Board of County Commissioners, 214 Kan. 708, 712, 522 P.2d 347.
5. Petition for writ of quo warranto challenging constitutionality of section denied; not violative of either article 2, Sec. 14 or article 11, Sec. 1 of Kansas Constitution. State ex rel. Stephan v. Martin, 230 Kan. 747, 748, 750, 751, 753, 754, 755, 756, 757, 758, 641 P.2d 1011 (1982).
6. Property valuation division use of post valuation data from next tax year quarter for personal property assessment held invalid. Board of Ness County Comm'rs v. Bankoff Oil Co., 24 Kan. App. 2d 532, 540, 949 P.2d 628 (1997).
7. Oil lease experiencing production decline late in year previous to assessment properly valued by consideration of post-January production data. Board of Ness County Commr's v. Bankoff Oil Co., 265 Kan. 525, 539, 540, 960 P.2d 1279 (1998).
8. Mandatory to consider all of statutory factors of section in determining value of oil and gas properties. Helmerich & Payne, Inc. v. Board of Seward County Comm'rs, 34 Kan. App. 2d 53, 115 P.3d 149 (2005).
9. COTA's decision on ad valorem tax valuation of oil and gas leasehold interests reversed and remanded. In re Tax Appeals of EOG Resources, Inc., 46 Kan. App. 2d 821, 265 P.3d 1207 (2011).
10. The use of minimum lease values for gas wells caused an assessed valuation greater than the fair market value. In re River Rock Energy Co., 58 K.A.2d 98, 104, 464 P.3d 344 (2020).
11. Working interest minimum lease value provision of oil and gas appraisal guide is consistent with accepted appraisal practices and calibrated to aid in the determination of fair market value; BOTA decision upholding county appraisers' application of the guide is affirmed where taxpayer submitted no well-specific information to support just cause to deviate from the guide. In re River Rock Energy Co., 313 K. 936, 492 P.3d 1157 (2021).