Mineral Severance Tax
Taxation of Production Increases of Governmental Units
September 8, 1983 Ruling 26-83-1
MINERAL SEVERANCE TAX - TAXATION OF PRODUCTION INTERESTS OF GOVERNMENTAL UNITS.
The United States of American its departments agencies and instrumentalities are exempt from the mineral severance tax in the absence of Congressional waiver of immunity. The State of Kansas, municipalities and other political subdivisions of the state are not exempt from the tax.
Advice has been requested regarding the taxation of leasehold interests of governmental units under the provisions of Chapter 313 of the 1983 Kansas Sessions Laws imposing an excise tax on the production of coal, salt, oil and gas in the State of Kansas.
Section 2 to that act provides that "_Such tax shall be borne ratably by all persons within the term 'producer' as such term is defined in section 1 of this act, in proportion to their respective beneficial interest in the coal, salt, oil or gas severed." The term "producer" is defined at subsection (h) of section 1 of the act as:
"_ any person owning, controlling, managing or leasing any coal, salt, oil or gas property or oil or gas well or coal or salt mine, and any person who severs in any manner any coal, salt, oil or gas in this state, and shall include any person owning any direct and beneficial interest in any coal, slat, oil or gas produced, whether severed by such person or some other person on their behalf, either by lease, contract or otherwise, including a royalty owner."
It is noted that subsection (b) of section 2 of the act sets out a number of circumstances under which production of oil, gas and coal is exempt from the tax levied by the act. However, there are no express provision in this section or any other section of the law relating to the exemption of production that is attributable to the interest of a governmental unit. Notwithstanding this lack of any express mention to exemption of interest of governmental units, there exists immunity from state and local taxation, implied from the United States Constitution, of all property, function and instrumentalities of the federal government. Such immunity exempts the federal government from both property as well as excise taxes imposed by the states. Therefore, it is the opinion of the Kansas Department of Revenue that any royalty interest of the United States of America or a department, agency or instrumentality thereof is exempt from the Kansas mineral severance tax except in those circumstances where Congressional action has specifically waived this immunity from taxation. However, the federal government's immunity from state and local taxation does not attach to the interest of a nongovermental lessee in a lease on land owned by the federal government, or any of its departments, agencies or instrumentalities, and the production interest of the lessee is subject to the mineral severance tax.
No immunity similar to that of the federal government from state excise taxes exists for the state, municipalities and other subdivisions of the state absent statutory authorization. Therefore, it is the opinion of the Kansas Department of Revenue that the State of Kansas, its departments and agencies, municipalities and other political subdivisions of the state are not exempt from the mineral severance tax in regard to any of their interests in production made taxable by Chapter 313 of the 1983 Sessions Laws.
Harley T. Duncan
Secretary of Revenue
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