KRS 143A.010: Definitions for chapter.

As used in this chapter:

(1) "Department" means the Department of Revenue;

(2) "Natural resource" means all forms of minerals, including but not limited to rock,

stone, limestone, shale, gravel, sand, clay, fluorspar, natural gas, and natural gas

liquids, which are contained in or on the soils or waters of this state. For purposes

of this chapter, "natural resource" does not include coal and oil which are taxed

under KRS 143.020 and 137.120;

(3) "Severing" or "severed" means the physical removal of the natural resource from

the earth o r waters of this state by any means; however, "severing" or "severed"

shall not include the removal of natural gas from underground storage facilities into

which the natural gas has been mechanically injected following its initial removal

from the earth;

(4) (a) "Taxpayer" means and includes any individual, partnership, joint venture,

association, corporation, receiver, trustee, guardian, executor, administrator,

fiduciary, or representative of any kind engaged in the business of severing

and/or processing natural resources in this state for sale or use. In instances

where contracts, either oral or written, are entered into whereby persons,

organizations, or businesses are engaged in the business of severing and/or

processing a natural resource but do not ob tain title to or do not have an

economic interest therein, the party who owns the natural resource or has an

economic interest is the taxpayer.

(b) For purposes of this chapter, a taxpayer possesses an economic interest in a

natural resource where the taxpayer has acquired by investment any interest in

a natural resource and secures, by any form of legal relationship, income

derived from the severance or processing of the natural resource, to which the

taxpayer must look for a return of the taxpayer's capit al. A party who has no

capital investment in the natural resource or who only receives an arm's length

royalty shall not be considered as having an economic interest;

(5) "Gross value" is defined as follows:

(a) For natural resources severed and/or process ed and sold during a reporting

period, gross value is the amount received or receivable by the taxpayer;

(b) For natural resources severed and/or processed, but not sold during a reporting

period, gross value shall be determined as follows:

1. If the natural resource is to be sold under the terms of an existing

contract, the contract price shall be used in computing gross value; and

2. If there is no existing contract, the fair market value for that grade and

quality of the natural resource shall be used in computing gross value;

(c) In a transaction involving related parties, gross value shall not be less than th e

fair market value for natural resources of similar grade and quality;

(d) In the absence of a sale, gross value shall be the fair market value for natural

resources of similar grade and quality;

(e) If severed natural resources are purchased for the purp ose of processing and

resale, the gross value is the amount received or receivable during the

reporting period reduced by the amount paid or payable to the taxpayer

actually severing the natural resource;

(f) If severed natural resources are purchased for the purpose of processing and

consumption, the gross value is the fair market value of processed natural

resources of similar grade and quality reduced by the amount paid or payable

to the taxpayer actually severing the natural resource;

(g) In all instanc es, the gross value shall not be reduced by any taxes including

the tax levied in KRS 143A.020, royalties, sales commissions, or any other

expense; and

(h) In all instances, transportation expense incurred in transporting a natural

resource shall not be considered as gross income from the property;

(6) "Processing" includes but is not limited to breaking, crushing, cleaning, drying,

sizing, or loading or unloading for any purpose. "Processing" shall not include the

act of unloading or loading for shipment n atural resources that have not been

severed, cleaned, broken, crushed, dried, sized or otherwise treated in Kentucky;

(7) "Related parties" means two (2) or more persons, organizations, or businesses

owned or controlled directly or indirectly by the same interests; and

(8) (a) "Transportation expense" means:

1. The amount paid by a taxpayer to a third party for transporting natural

resources; and

2. The expenses incurred by a taxpayer using the taxpayer's own facilities

in transporting natural resources fro m the point of extraction to a

processing plant, tipple, or loading dock.

(b) "Transportation expense" shall not include:

1. The cost of acquisition, improvements, and maintenance of real

property;

2. The cost of acquisition and operating expenses of mining and nonmining

loading or unloading facilities; or

3. The cost of acquisition and operating expenses of equipment used to

load or unload the natural resource at the point of extraction, processing

facility, or mining and nonmining loading facility.