By Yost H.B. No. 2679 A BILL TO BE ENTITLED 1-1 AN ACT 1-2 relating to reduced tax rates for nominal production oil and gas 1-3 wells. 1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS: 1-5 SECTION 1. Section 201.052, Tax Code, is amended by adding 1-6 subsection (c) to read as follows: 1-7 (c) For gas produced in this state from a nominal production 1-8 gas well that qualifies under Section 201.058 of this code or from 1-9 a nominal production oil well that qualifies under Section 202.055 1-10 of this code, the rate of tax imposed by this chapter is 3.75 1-11 percent of the market value of the gas produced and saved in this 1-12 state by the producer. 1-13 SECTION 2. Section 201.055, Tax Code, is amended by adding 1-14 subsection (c) to read as follows: 1-15 (c) For condensate produced in this state from a nominal 1-16 production gas well that qualifies under Section 201.058 of this 1-17 code, the tax imposed by this section is at the same rate as the 1-18 rate of tax imposed on oil by Section 202.052 subsection (c) of 1-19 this code. 1-20 SECTION 3. Subchapter B, Chapter 201, Tax Code, is amended 1-21 by adding Section 201.058 to read as follows: 1-22 Sec. 201.058. QUALIFICATION OF GAS AND CONDENSATE FROM 1-23 NOMINAL PRODUCTION WELLS FOR REDUCED TAX RATE 2-1 (a) In this section: 2-2 (1) "Commission" means the Railroad Commission of 2-3 Texas. 2-4 (2) "Gas well" means a well that: 2-5 (A) produces gas not associated or blended with 2-6 oil at the time of production; 2-7 (B) produces more than 100,000 cubic feet of gas 2-8 to each barrel of oil from the same producing horizon; or 2-9 (C) produces gas from a formation or producing 2-10 horizon productive of gas only encountered in a well bore through 2-11 which oil is also produced through the inside of another string of 2-12 casing. 2-13 (3) "Nominal production gas well" means any gas well 2-14 that has an average daily gas production rate of 20,000 cubic feet 2-15 per day or less. 2-16 (4) "Reduced gas tax rate" means the tax rate imposed 2-17 by Section 201.052 subsection (c) of this code. 2-18 (5) "Reduced condensate tax rate" means the tax rate 2-19 imposed by Section 201.055 subsection (c) of this code. 2-20 (b) Gas produced from a well qualifies for the reduced gas 2-21 tax rate and condensate produced from a well qualifies for the 2-22 reduced condensate tax rate if the commission designates the well 2-23 as a nominal production gas well. 2-24 (c) The commission may designate a well without an 2-25 application from the operator, or the operator of the well may 3-1 apply to the commission for approval under this section. The 3-2 commission may require an applicant to provide the commission with 3-3 any relevant information required to administer this section. 3-4 (d) If the commission designates a nominal production gas 3-5 well under this section, it shall issue a certificate designating 3-6 the well as a nominal production gas well. 3-7 (e) The reduced gas tax rate and reduced condensate tax rate 3-8 apply only to gas and condensate produced from gas wells that have 3-9 an average daily gas production rate of 20,000 cubic feet or less. 3-10 (f) The commission may revoke the certification authorized 3-11 by this section if the daily gas production rate for a gas well 3-12 exceeds 20,000 cubic feet. Upon notice from the commission that 3-13 the certification for tax rate reduction under this section has 3-14 been revoked, the tax rate reduction may not be applied to gas or 3-15 condensate production sold thereafter. 3-16 (g) The commission has broad discretion in administering 3-17 this section and shall adopt and enforce any rules or orders that 3-18 the commission finds necessary to administer this section. The 3-19 comptroller shall have the power to establish procedures in order 3-20 to comply with this Act. 3-21 (h) To qualify for the reduced gas tax rate and reduced 3-22 condensate tax rate, a person responsible for paying the tax must 3-23 apply to the comptroller. The application must include the 3-24 certification of approval of the commission that the well is a 3-25 nominal production gas well. The comptroller shall approve the 4-1 application of a person who demonstrates that the gas is eligible 4-2 for the reduced gas tax rate. The comptroller may require a person 4-3 applying for the tax rate reduction to provide any relevant 4-4 information that the comptroller considers necessary to administer 4-5 this section. The commission shall notify the comptroller in 4-6 writing immediately if the commission discovers any information 4-7 that affects the taxation of the production from the designated 4-8 well. 4-9 (i) If the tax is paid at the full rate provided by Sections 4-10 201.052(a), 201.052(b), or 201.055(b) of this code before the 4-11 comptroller approves an application for a reduction in the tax rate 4-12 provided for in this chapter, the producer of the gas or condensate 4-13 is entitled to a credit against taxes imposed by this chapter in an 4-14 amount equal to the difference between the tax paid and the tax due 4-15 at the reduced tax rate. To receive a credit, the producer must 4-16 apply to the comptroller for the credit not later than the first 4-17 anniversary after the date the commission certifies that the well 4-18 is a nominal production gas well. 4-19 (j) Any person who violates this subsection is liable to the 4-20 state for a civil penalty if the person applies or attempts to 4-21 apply the tax rate reduction allowed by this section on gas or 4-22 condensate after the certification for tax rate reduction is 4-23 terminated. The amount of the penalty may not exceed the sum of: 4-24 (1) $10,000; and 4-25 (2) the difference between the amount of taxes paid or 5-1 attempted to be paid and the amount of taxes due. 5-2 (k) The Attorney General may recover a penalty under 5-3 subsection (j) of this section in a suit brought on behalf of the 5-4 state. Venue for the suit is in Travis County. 5-5 SECTION 4. Section 202.052, Tax Code, is amended by adding 5-6 subsection (c) to read as follows: 5-7 (c) For oil produced in this state from a nominal production 5-8 oil well that qualifies under Section 202.055 of this code, the 5-9 rate of tax imposed by this chapter is 2.3 percent of the market 5-10 value of the oil. 5-11 SECTION 5. Subchapter B, Chapter 202, Tax Code, is amended 5-12 by adding Section 202.055 to read as follows: 5-13 Sec. 202.055. QUALIFICATION OF OIL AND CASINGHEAD GAS FROM 5-14 NOMINAL PRODUCTION WELLS FOR REDUCED TAX RATE 5-15 (a) In this section: 5-16 (1) "Commission" means the Railroad Commission of 5-17 Texas. 5-18 (2) "Casinghead gas" means gas or vapor indigenous to 5-19 an oil stratum and produced from the stratum with oil. 5-20 (3) "Nominal production oil well" means any oil well 5-21 that has an average daily oil production rate of 3 barrels per day 5-22 or less. 5-23 (4) "Oil well" means any well that produces one barrel 5-24 or more of oil to each 100,000 cubic feet of gas. 5-25 (5) "Reduced gas tax rate" means the tax rate imposed 6-1 by Section 201.052 subsection (c) of this code. 6-2 (6) "Reduced oil tax rate" means the tax imposed by 6-3 Section 202.052 subsection (c) of this code. 6-4 (b) Oil produced from a well qualifies for the reduced oil 6-5 tax rate and casinghead gas produced from a well qualifies for the 6-6 reduced gas tax rate if the commission designates the well as a 6-7 nominal production oil well. 6-8 (c) The commission may designate a well without an 6-9 application from the operator, or the operator of the well may 6-10 apply to the commission for approval under this section. The 6-11 commission may require an applicant to provide the commission with 6-12 any relevant information required to administer this section. 6-13 (d) If the commission designates a nominal production oil 6-14 well under this section, it shall issue a certificate designating 6-15 the well as a nominal production oil well. 6-16 (e) The reduced oil tax rate applies only to oil and the 6-17 reduced gas tax rate applies only to casinghead gas produced from 6-18 oil wells that have an average daily oil production rate of 3 6-19 barrels or less. 6-20 (f) The commission may revoke the certification authorized 6-21 by this section if the daily oil production rate for an oil well 6-22 exceeds 3 barrels. Upon notice from the commission that the 6-23 certification for tax rate reduction under this section has been 6-24 revoked, the tax rate reduction may not be applied to oil or 6-25 casinghead gas production sold thereafter. 7-1 (g) The commission has broad discretion in administering 7-2 this section and shall adopt and enforce any rules or orders that 7-3 the commission finds necessary to administer this section. The 7-4 comptroller shall have the power to establish procedures in order 7-5 to comply with this Act. 7-6 (h) To qualify for a tax reduction, a person responsible for 7-7 paying the tax must apply to the comptroller. The application must 7-8 include the certification of approval of the commission that the 7-9 well is a nominal production oil well. The comptroller shall 7-10 approve the application of a person who demonstrates that the oil 7-11 and casinghead gas is eligible for a reduced tax rate. The 7-12 comptroller may require a person applying for a tax rate reduction 7-13 to provide any relevant that the comptroller considers necessary to 7-14 administer this section. The commission shall notify the 7-15 comptroller in writing immediately if the commission discovers any 7-16 information that affects the taxation of the production from the 7-17 designated well. 7-18 (i) If the tax is paid at the full rate provided by Sections 7-19 201.052(a), 201.052(b), 202.052(a) or 202.052(b) of this code 7-20 before the comptroller approves an application for a reduction in 7-21 the tax rate provided for in this chapter, the producer of the oil 7-22 and casinghead gas is entitled to a credit against taxes imposed by 7-23 this chapter in an amount equal to the difference between the tax 7-24 paid and the tax due at the reduced tax rate. To receive a credit, 7-25 the producer must apply to the comptroller for the credit not later 8-1 than the first anniversary after the date the commission certifies 8-2 that the well is a nominal production oil well. 8-3 (j) Any person who violates this subsection is liable to the 8-4 state for a civil penalty if the person applies or attempts to 8-5 apply a tax rate reduction allowed by this section on oil or 8-6 casinghead gas after the certification for tax rate reduction is 8-7 terminated. The amount of the penalty may not exceed the sum of: 8-8 (1) $10,000; and 8-9 (2) the difference between the amount of taxes paid or 8-10 attempted to be paid and the amount of taxes due. 8-11 (k) The Attorney General may recover a penalty under 8-12 subsection (j) of this section in a suit brought on behalf of the 8-13 state. Venue for the suit is in Travis County. 8-14 SECTION 6. This Act takes effect September 1, 1993. 8-15 SECTION 7. EMERGENCY. The importance of this legislation 8-16 and the crowded condition of the calendars in both houses create an 8-17 emergency and an imperative public necessity that the 8-18 constitutional rule requiring bills to be read on three several 8-19 days in each house be suspended, and this rule is hereby suspended, 8-20 and that this Act take effect and be in force from and after its 8-21 passage, and it is so enacted.