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Tax/Capital Fact Sheets

Kansas Ad Valorem Tax

For almost two decades the Federal Energy Regulatory Commission (FERC) allowed producers to obtain reimbursement for payment of Kansas ad valorem taxes on natural gas, just as state taxes were treated in other states. The taxes were included in the price of natural gas, and the price increase was to be passed on to consumers without markup by gas pipelines.

In a series of orders, FERC expressly approved the collection of the Kansas ad valorem tax, despite repeated challenges by various pipelines and distributors. Later, FERC changed its position and decided that the Kansas ad valorem tax did not qualify for reimbursement to the producer, on top of the maximum lawful price that would otherwise apply to regulate the price of gas.

Recognizing that the collection of the Kansas ad valorem tax was perfectly legal and proper prior to the date of its decision, FERC made its decision prospective. The Court of Appeals, after reviewing the Commission decision, held that producers would be "foolhardy" to rely on FERC orders in light of the challenges being made. Therefore, the Court held that FERC’s orders should be applied retroactively to 1983. The Supreme Court declined to review the case.

Legislation has been introduced that would provide relief from the interest portion of the liability. This would at least provide some relief to independents who relied on FERC’s orders in good faith. Please consider co-sponsoring and supporting this legislation which is critical to many small producers throughout the country.

October 1999