By Craddick H.B. No. 942
74R3256 CBH-D
A BILL TO BE ENTITLED
1-1 AN ACT
1-2 relating to an exemption from the oil and gas production taxes for
1-3 certain horizontally drilled wells; providing a civil penalty.
1-4 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-5 SECTION 1. Section 201.053, Tax Code, is amended to read as
1-6 follows:
1-7 Sec. 201.053. Gas Not Taxed. The tax imposed by this
1-8 chapter does not apply to gas:
1-9 (1) injected into the earth in this state, unless sold
1-10 for that purpose;
1-11 (2) produced from oil wells with oil and lawfully
1-12 vented or flared; or
1-13 (3) used for lifting oil, unless sold for that
1-14 purpose<; or>
1-15 <(4) produced in this state from a well that qualifies
1-16 under Section 202.056>.
1-17 SECTION 2. Subchapter B, Chapter 201, Tax Code, is amended
1-18 by adding Section 201.056 to read as follows:
1-19 Sec. 201.056. TAX EXEMPTIONS. The exemptions described by
1-20 Section 202.056 and Chapter 205 apply to the taxes imposed by this
1-21 chapter as authorized by and subject to the certifications and
1-22 approvals required by those exemption provisions.
1-23 SECTION 3. Section 202.052(c), Tax Code, is amended to read
1-24 as follows:
2-1 (c) The exemptions described by Section 202.056 and Chapter
2-2 205 apply to <For> oil produced in this state from a well that
2-3 qualifies under Section 202.056 or Chapter 205 subject to the
2-4 certifications and approvals required by those exemption
2-5 provisions<, the rate of tax imposed by this chapter shall be
2-6 reduced to zero>.
2-7 SECTION 4. Subtitle I, Title 2, Tax Code, is amended by
2-8 adding Chapter 205 to read as follows:
2-9 CHAPTER 205. TAX EXEMPTION FOR HYDROCARBONS FROM HORIZONTALLY
2-10 DRILLED WELLS
2-11 Sec. 205.001. DEFINITIONS. In this chapter:
2-12 (1) "Commission" means the Railroad Commission of
2-13 Texas.
2-14 (2) "Completion date" means the date on which a well
2-15 is actually made capable of producing hydrocarbons, as shown on the
2-16 completion report filed by the operator with the commission.
2-17 (3) "Horizontally drilled well" means a gas or oil
2-18 well that is completed:
2-19 (A) in a geological formation designated as a
2-20 distinct field; and
2-21 (B) with at least one drainhole in which the
2-22 horizontal displacement within the formation is at least 100 feet.
2-23 (4) "Hydrocarbons" means any gas, oil, condensate, or
2-24 other liquid hydrocarbons produced from a well.
2-25 (5) "Spud date" means the date on which drilling
2-26 operations on a well are initiated by cutting the initial hole into
2-27 the ground as shown on the completion report filed by the operator
3-1 with the commission.
3-2 Sec. 205.002. TAX EXEMPTION. Hydrocarbon production from a
3-3 horizontally drilled well is exempt from the taxes imposed by
3-4 Chapters 201 and 202 if:
3-5 (1) the well has:
3-6 (A) a spud date that is on or after September 1,
3-7 1995; and
3-8 (B) a completion date that is not later than
3-9 December 31, 1999; and
3-10 (2) the comptroller has approved the tax exemption
3-11 under Section 205.004.
3-12 Sec. 205.003. APPLICATION FOR CERTIFICATION. (a) The
3-13 operator of an eligible well may apply to the commission for
3-14 certification of the well as a horizontally drilled well.
3-15 (b) In addition to other requirements of this chapter, the
3-16 operator must include with the application a statement of the cost
3-17 of drilling the well as a horizontally drilled well and any other
3-18 information the commission requires.
3-19 (c) If the commission approves the application, the
3-20 commission shall issue a certificate to the operator. The
3-21 certificate must:
3-22 (1) include identification of the qualifying well;
3-23 (2) state the cost of drilling the well as a
3-24 horizontally drilled well, as determined by the commission; and
3-25 (3) state the date on which the tax exemption takes
3-26 effect, subject to the comptroller's approval of the exemption
3-27 under Section 205.004.
4-1 Sec. 205.004. APPLICATION FOR AND APPROVAL OF TAX EXEMPTION.
4-2 (a) To qualify for the tax exemption provided by this chapter, the
4-3 person responsible for paying the tax must apply to the comptroller
4-4 for the exemption and include with the application the certificate
4-5 issued under Section 205.003 by the commission.
4-6 (b) The comptroller may require a person applying for the
4-7 tax exemption to provide any information necessary to administer
4-8 this section.
4-9 (c) The comptroller shall approve a person's application if
4-10 the hydrocarbons are eligible for the tax exemption.
4-11 (d) The total tax exemptions provided by this chapter for a
4-12 well are equal to the lesser of:
4-13 (1) the total tax due on hydrocarbon production from
4-14 the certified well that occurs on or before the second anniversary
4-15 of the date on which the tax exemption takes effect; or
4-16 (2) the cost of drilling the well as a horizontally
4-17 drilled well as stated on the certificate issued under Section
4-18 205.003.
4-19 (e) The comptroller may establish procedures as necessary to
4-20 comply with this section and Section 205.007.
4-21 Sec. 205.005. REVOCATION OF CERTIFICATION. (a) The
4-22 commission may revoke a horizontally drilled well certificate if
4-23 the commission finds that the well was not eligible for that
4-24 designation at the time of certification.
4-25 (b) The commission shall notify the operator and the
4-26 comptroller that the certificate has been revoked.
4-27 (c) A tax exemption granted under this chapter is
5-1 automatically revoked on the date the horizontally drilled well
5-2 certificate is revoked, and hydrocarbons produced from that well on
5-3 or after the day after the date of revocation are not eligible for
5-4 the tax exemption.
5-5 Sec. 205.006. COMMISSION DISCRETION AND RULES. The
5-6 commission has broad discretion in administering this chapter and
5-7 may adopt and enforce any appropriate rules or orders that the
5-8 commission finds necessary to administer this chapter, including
5-9 production allocation procedures as necessary to allocate oil lease
5-10 production to a horizontally drilled well.
5-11 Sec. 205.007. TAX CREDIT. (a) If the tax is paid at the
5-12 full rate provided by Chapter 201 or 202 on hydrocarbons produced
5-13 on or after the effective date of the tax exemption contained in
5-14 the well certificate but before the date the comptroller approves
5-15 the application for the tax exemption, the operator is entitled to
5-16 a credit on taxes due under Chapter 201 or 202 in an amount equal
5-17 to the tax paid during that period.
5-18 (b) To receive a credit, the operator must apply to the
5-19 comptroller for the credit not later than the first anniversary of
5-20 the date the commission certifies the well as a horizontally
5-21 drilled well.
5-22 Sec. 205.008. PENALTIES. (a) A person is subject to the
5-23 penalties that may be imposed under Chapters 85 and 91, Natural
5-24 Resources Code, if the person makes and submits to the commission
5-25 or the comptroller an application, report, or other document that
5-26 is used or intended to be used for a certification, tax exemption,
5-27 or a tax credit under this chapter and the person knows that the
6-1 application, report, or other document contains a false or untrue
6-2 material fact.
6-3 (b) A person is liable to the state for a civil penalty if
6-4 the person, after receiving notice from the commission that the
6-5 person's certificate for a horizontally drilled well has been
6-6 revoked, applies or attempts to apply for a tax exemption for that
6-7 well using the revoked certificate. The amount of the penalty may
6-8 not exceed the sum of:
6-9 (1) $10,000; and
6-10 (2) the difference between the amount of taxes paid or
6-11 attempted to be paid and the amount of taxes due.
6-12 (c) The attorney general may recover a penalty under
6-13 Subsection (b) in a suit brought on behalf of the state. Venue for
6-14 the suit is in Travis County.
6-15 SECTION 5. This Act takes effect September 1, 1995.
6-16 SECTION 6. The importance of this legislation and the
6-17 crowded condition of the calendars in both houses create an
6-18 emergency and an imperative public necessity that the
6-19 constitutional rule requiring bills to be read on three several
6-20 days in each house be suspended, and this rule is hereby suspended.