BILL ANALYSIS
C.S.H.B. 1892
By: Holzheauser (Sims)
Finance
5-25-95
Senate Committee Report (Substituted)
BACKGROUND
Technology holds much of the key to Texas' oil and gas future. New
technologies, if developed in Texas, can aid in the recovery of
part of the trillions of dollars worth of oil and gas already
discovered in Texas. If developed in Texas, these technologies can
be marketed to the rest of the world as the world's ability to
produce declines.
PURPOSE
As proposed, C.S.H.B. 1892 provides an exemption from the oil and
gas taxes for hydrocarbons produced from wells that use new
recovery techniques, and provides civil penalties for false
material fact.
RULEMAKING AUTHORITY
It is the committee's opinion that rulemaking authority is granted
to the Railroad Commission of Texas under SECTION 4 (Section
205.008, Tax Code) of this bill.
SECTION BY SECTION ANALYSIS
SECTION 1. Amends Section 201.053, Tax Code, to delete text
providing the tax imposed by Chapter 201 does not apply to gas
produced in this state from a well that qualifies under Section
202.056.
SECTION 2. Amends Chapter 201B, Tax Code, by adding Section
201.056, as follows:
Sec. 201.056. TAX EXEMPTIONS. Provides that the exemptions
described by Section 202.056 and Chapters 205 and 206 apply to
the taxes imposed by this chapter as authorized by and subject
to the certifications and approvals required by those
exemption provisions.
SECTION 3. Amends Section 202.052(c), Tax Code, to provide that the
exemptions described by Section 202.056 and Chapters 205 and 206
apply to oil produced in this state from a well that qualifies
under Section 202.056 or Chapter 205 or 206 subject to the
certifications and approvals required by those exemption
provisions. Deletes the requirement that the rate of tax be
reduced to zero.
SECTION 4. Amends Subtitle I, Title 2, Tax Code, by adding Chapter
205, as follows:
CHAPTER 205. TAX EXEMPTION FOR CATEGORY TWO MARGINAL
OIL AND GAS LEASES
Sec. 205.001. Defines "barrel," "BOE," "category two
marginal lease," "commission," "hydrocarbon," "lease," "lease
production," "Mcf," "new well chit," "new well," and "posted
price of West Texas intermediate oil."
Sec. 205.002. TAX EXEMPTION. Exempts hydrocarbons
production from a category two marginal lease (marginal lease)
from the taxes imposed by Chapters 201 and 202 if the
comptroller has approved the tax exemption under Section
205.006.
Sec. 205.003. APPLICATION FOR CERTIFICATION. (a)
Authorizes the operator of an eligible lease to apply to the
Railroad Commission of Texas (commission) for certification of
the lease as a marginal lease.
(b) Requires the operator to include with the application
any relevant information the commission requires.
(c) Requires the commission to issue a certificate to the
operator. Requires the certificate to contain certain
information.
(d) Provides that the tax exemption is effective on certain
dates.
(e) Prohibits the commission from issuing a certificate
under this section until the posted price of West Texas
intermediate oil (oil) is at or below certain prices.
(f) Requires the comptroller to compute the posted daily
price of oil for the purposes of Subsection (e). Requires
the comptroller to publish, one time, in the Texas Register,
the posted price of oil for each of the qualifying 60
consecutive days when the requirements of Subsection (e) are
met. Authorizes only the comptroller's computations of the
posted daily price to be used to determine when the
commission may issue a certification under this section.
Sec. 205.004. QUALIFICATION FOR CERTIFICATION. (a) Sets
forth the criteria for a lease to be eligible for
certification as a marginal lease.
(b) Requires the 12-consecutive-month production report
period required by Subsection (a) to begin with a month for
which some hydrocarbon production is reported to the
commission.
(c) Provides that a 12-month period is ineligible under
Subsection (a) unless during at least seven calendar months
of the period some hydrocarbons have been produced and
reported to the commission.
(d) Provides that production is determined under this
section by rounding up to the nearest BOE produced.
Sec. 205.005. NEW WELL CHITS. (a) Authorizes the operator
of a new well to apply to the commission for new well chits
only after five months of production is reported for the well.
(b) Requires an operator to apply for new well chits before
September 1998.
(c) Requires the commission to issue to the operator one
new well chit for each BOE capacity from the new well.
Requires the operator to notify each person who owns a
working interest in a new well of the issuance of new well
chits relating to that well and to distribute the
appropriate number of chits to each person. Provides that
the number of chits each person is entitled to receive is
determined by that person's percentaged of ownership
interest in the well.
(d) Sets forth the BOE capacity for a new oil well on a
single-well oil lease or for a new gas well for purposes of
issuing new well chits.
(e) Sets forth the capacity for a new oil well on a
multilevel oil lease.
(f) Provides that production from the lease is apportioned
between the new well and other producing oil wells on the
lease according to the new well BOE capacity test and the
sum of the most recent BOE capacity tests for all of the
other oil wells on the lease in determining BOE capacity
under Subsection (e)(2).
(g) Requires a BOE capacity test for a new well to be
performed by a certain date on which the operator applies
for the new well chits. Requires BOE capacity tests for all
other wells to have been performed not earlier than one year
before the date on which the operator applies for the new
well chits. Requires all BOE capacity tests to be performed
in accordance with commission rules.
(h) Prohibits the commission from considering hydrocarbons
that are vented or flared in determining the BOE capacity of
a new well.
(i) Authorizes an operator or owner of a working interest
to sell or transfer new well chits to another operator or
owner or any other person, but only an operator may use a
new well chit to qualify a lease for certification as a
marginal lease under Section 205.004. Exempts the sale or
transfer of new well chits under this subsection from the
taxes imposed by Chapter 151, and revenue from that sale or
transfer is not included in computing a corporation's new
taxable capital or new taxable earned surplus under Chapter
171.
Sec. 205.006. APPLICATION FOR AND APPROVAL OF TAX EXEMPTION.
(a) Requires the person responsible for paying the tax to
apply to the comptroller for the appropriate exemption and
include with the application the certificate issued under
Section 205.003 by the commission to qualify for the tax
exemption provided by this chapter.
(b) Authorizes the comptroller to require a person applying
for the tax exemption to provide any information necessary
to administer this section.
(c) Requires the comptroller to approve a person's
application if the hydrocarbons are eligible for the tax
exemption.
(d) Authorizes the comptroller to establish procedures as
necessary to comply with this section and Section 205.009.
Sec. 205.007. REVOCATION OF CERTIFICATION. (a) Authorizes
the commission to revoke a marginal lease certificate if the
commission finds that the lease was not eligible for that
designation at the time of certification.
(b) Requires the commission to notify the operator and the
comptroller that the certificate has been revoked.
(c) Provides that a tax exemption granted under this
chapter is automatically revoked on the date the marginal
lease certificate is revoked, and hydrocarbons produced from
that lease on or after the day after the date of revocation
are not eligible for the tax exemption.
Sec. 205.008. COMMISSION DISCRETION AND RULES. Authorizes
the commission to adopt and enforce any appropriate rules or
orders that the commission finds necessary to administer this
chapter.
Sec. 205.009. TAX CREDIT. (a) Provides that if the tax is
paid at the full rate provided by Chapter 201 or 202 on
hydrocarbons produced on or after the effective date of the
tax exemption contained in the lease certificate but before
the date the comptroller approves the application for the
exemption, the operator is entitled to a credit on taxes due
in an amount equal to the tax paid during that period.
(b) Requires the operator to apply to the comptroller for
the credit by the first anniversary of the date the
commission certifies the lease as a marginal lease.
Sec. 205.010. PENALTIES. (a) Provides that a person is
subject to the penalties that may be imposed under Chapters 85
and 91, Natural Resources Code, if the person makes and
submits to the commission or the comptroller an application,
report, or other document that is used or intended to be used
for a certification, tax exemption, or a tax credit under this
chapter and the person knows that the application, report, or
other document contains a false or untrue material fact.
(b) Provides that a person is liable to the state for a
civil penalty if the person, after receiving notice from the
commission that the person's certificate for a marginal
lease has been revoked, applies or attempts to apply for a
tax exemption for that lease using the revoked certificate.
Prohibits the amount of the penalty from exceeding a certain
sum.
(c) Authorizes the attorney general to recover a penalty
under Subsection (b) in a suit brought on behalf of the
state. Provides that venue for the suit is in Travis
County.
SECTION 5. Amends Title 2I, Tax Code, by adding Chapter 206, as
follows:
CHAPTER 206. TAX EXEMPTION FOR CERTAIN HYDROCARBONS PRODUCED AS
A RESULT OF PRODUCTION ENHANCEMENT PROJECT
Sec. 206.001. Defines "commission," "hydrocarbons," "new
hydrocarbon recovery technique," "project," and "successful
project."
Sec. 206.002. TAX EXEMPTION FOR PROJECT AND SUCCESSFUL
PROJECT. (a) Exempts hydrocarbons produced from a well that
is included in an approved project during the period specified
by Section 206.003(d) from the taxes imposed by Chapters 201
and 202 in accordance with Section 206.003(d) if the
comptroller has approved the tax exemption under Section
206.006.
(b) Exempts hydrocarbons produced from a well in a
successful project from the taxes imposed by Chapters 201
and 202 in accordance with Section 206.004(d) and 206.005(c)
if the comptroller has approved the tax exemption under
Section 206.006.
Sec. 206.003. APPLICATION FOR INITIAL PROJECT. (a)
Authorizes the operator of one or more wells in a field in
which the operator intends to employ a new hydrocarbon
technique to apply to the Railroad Commission of Texas
(commission) for approval of the project to be eligible for
the tax exemption under Section 206.002.
(b) Requires the operator to include with the application
a statement of the date on which the project begins and the
date it will end, subject to commission approval, and any
other information the comptroller requires.
(c) Requires the commission to issue a certificate to each
operator of a well included in the project if the commission
approves a project. Requires the certificate to contain
certain information.
(d) Provides that the tax exemption is effective on the
first day the project begins and expires on the 90th day
after the date the project ends.
(e) Requires the operator to report to the commission the
production results from the project by the 90th day after
the date on which the projects ends.
Sec. 206.004. APPLICATION FOR SUCCESSFUL PROJECT. (a)
Authorizes the operator of one or more wells included in a
project approved under Section 206.003 to apply to the
commission for certification of the project as a successful
project under this section if the project is a successful
project.
(b) Requires the operator to include certain evidence with
the application in addition to the other requirements of
this chapter.
(c) Requires the commission to issue a certificate to each
operator of a well that participated in the successful
project using the same new hydrocarbon recovery technique
(technique). Requires the certificate to contain certain
information.
(d) Provides that the tax exemption is effective on the
first day of the first month after the date on which the
commission receives the application for certification of the
project as a successful project.
Sec. 206.005. APPLICATION FOR ADDITIONAL WELLS. (a)
Authorizes an operator of a well located in a field in which
a successful project has been certified under Section 206.004
to apply to the commission for certification of the well under
this section if the operator uses the same technique approved
by the commission for the successful project.
(b) Prohibits the commission from issuing a certificate
under this section to more than 100 wells in a field,
including the original wells certified under Section
206.004, for using the same technique. Requires the
commission to determine which wells qualify for
certification. Sets forth requirements for the certificate.
(c) Provides that the tax exemption is effective on the
first day of the first month after the date on which the
commission receives the application under this section for
certification of the well.
Sec. 206.006. APPLICATION FOR AND APPROVAL OF TAX EXEMPTION.
(a) Requires the person responsible for paying the tax to
apply to the comptroller for the appropriate exemption and
include with the application the certificate issued under
Section 206.003, 206.004, or 206.005, as appropriate.
(b) Authorizes the comptroller to require a person applying
for the tax exemption to provide any information necessary
to administer this section.
(c) Requires the comptroller to approve a person's
application if the hydrocarbons are eligible for the tax
exemption.
Sec. 206.007. REVOCATION OF CERTIFICATION. (a) Authorizes
the commission to revoke a certificate if the commission finds
that the well was not eligible for that designation at the
time of certification.
(b) Requires the commission to notify the operator and the
comptroller that the certificate has been revoked.
(c) Provides that a tax exemption granted under this
chapter is automatically revoked on the date the certificate
is revoked, and hydrocarbon production from that well on or
after the day after the date of revocation is not eligible
for the tax exemption.
Sec. 206.008. COMMISSION DISCRETION AND RULES. Authorizes
the commission to adopt and enforce any appropriate rules or
orders that the commission finds necessary to administer this
chapter.
Sec. 206.009. TAX CREDIT. (a) Provides that if the tax is
paid under Chapter 201 or 202 on hydrocarbon production on or
after the effective date of the tax exemption contained in the
certificate but before the date the comptroller approves the
application for the exemption, the operator is entitled to a
credit on taxes due in an amount equal to the tax paid on
hydrocarbon production during that period.
(b) Requires the operator to apply to the comptroller for
the credit by the first anniversary of the date the
commission certifies the well.
Sec. 206.010. PENALTIES. (a) Provides that a person is
subject to the penalties that may be imposed under Chapters 85
and 91, Natural Resources Code, if the person makes and
submits to the commission or the comptroller an application,
report, or other document that is used or intended to be used
for a certification, tax exemption, or a tax credit under this
chapter and the person knows that the application, report, or
other document contains a false or untrue material fact.
(b) Provides that a person is liable to the state for a
civil penalty if the person, after receiving notice from the
commission that the person's certificate has been revoked,
applies or attempts to apply for a tax exemption for that
well using the revoked certificate. Prohibits the amount of
the penalty from exceeding a certain sum.
(c) Authorizes the attorney general to recover a penalty
under Subsection (b) in a suit brought on behalf of the
state. Provides that venue for the suit is in Travis
County.
SECTION 6. Effective date: September 1, 1995.
SECTION 7. Emergency clause.