By Craddick H.B. No. 1238
74R3600 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 hydrocarbons produced as a result of a production
1-4 enhancement project; providing a civil penalty.
1-5 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
1-6 SECTION 1. Section 201.053, Tax Code, is amended to read as
1-7 follows:
1-8 Sec. 201.053. Gas Not Taxed. The tax imposed by this
1-9 chapter does not apply to gas:
1-10 (1) injected into the earth in this state, unless sold
1-11 for that purpose;
1-12 (2) produced from oil wells with oil and lawfully
1-13 vented or flared; or
1-14 (3) used for lifting oil, unless sold for that
1-15 purpose<; or>
1-16 <(4) produced in this state from a well that qualifies
1-17 under Section 202.056>.
1-18 SECTION 2. Subchapter B, Chapter 201, Tax Code, is amended
1-19 by adding Section 201.056 to read as follows:
1-20 Sec. 201.056. TAX EXEMPTIONS. The exemptions described by
1-21 Section 202.056 and Chapter 205 apply to the taxes imposed by this
1-22 chapter as authorized by and subject to the certifications and
1-23 approvals required by those exemption provisions.
1-24 SECTION 3. Section 202.052(c), Tax Code, is amended to read
2-1 as follows:
2-2 (c) The exemptions described by Section 202.056 and Chapter
2-3 205 apply to <For> oil produced in this state from a well that
2-4 qualifies under Section 202.056 or Chapter 205 subject to the
2-5 certifications and approvals required by those exemption
2-6 provisions<, the rate of tax imposed by this chapter shall be
2-7 reduced to zero>.
2-8 SECTION 4. Subtitle I, Title 2, Tax Code, is amended by
2-9 adding Chapter 205 to read as follows:
2-10 CHAPTER 205. TAX EXEMPTION FOR CERTAIN HYDROCARBONS PRODUCED
2-11 AS A RESULT OF PRODUCTION ENHANCEMENT PROJECT
2-12 Sec. 205.001. DEFINITIONS. In this chapter:
2-13 (1) "Commission" means the Railroad Commission of
2-14 Texas.
2-15 (2) "Hydrocarbons" means any gas, oil, condensate, or
2-16 other liquid hydrocarbons produced from a well.
2-17 (3) "Incremental hydrocarbon production" means the
2-18 hydrocarbons produced from a well after the completion of a
2-19 production enhancement project on the well and includes only the
2-20 production of hydrocarbons that is in excess of the well's average
2-21 monthly production as determined during the 12-month period
2-22 preceding the date on which the project began.
2-23 (4) "Production enhancement project" means a downhole
2-24 operation in an existing gas or oil well that is designed to
2-25 establish, sustain, restore, or increase the production or recovery
2-26 of hydrocarbons through the use of fracturing, recompletion, or a
2-27 workover.
3-1 (5) "Recompletion" means a downhole operation in an
3-2 existing oil or gas well to establish production of hydrocarbons
3-3 from a geological interval that is not completed or producing in
3-4 that well.
3-5 (6) "Workover" means a downhole operation in an
3-6 existing oil or gas well designed to sustain, restore, or increase
3-7 the well's production rate or the ultimate recovery of hydrocarbons
3-8 from a geological interval that is completed or producing in that
3-9 well. The term includes acidizing, reperforating, fracture
3-10 treating, sand or paraffin removal, sand and paraffin removal,
3-11 casing repair, squeeze cementing, or setting bridge plugs to
3-12 isolate water productive zones from oil or gas productive zones.
3-13 The term does not include routine maintenance, repair, or
3-14 replacement of downhole equipment such as rods, pumps, tubing,
3-15 packers, or other mechanical devices.
3-16 Sec. 205.002. TAX EXEMPTION. Incremental hydrocarbon
3-17 production is exempt from the taxes imposed by Chapters 201 and 202
3-18 if the comptroller has approved the tax exemption under Section
3-19 205.004.
3-20 Sec. 205.003. APPLICATION FOR CERTIFICATION. (a) The
3-21 operator of a well for which a production enhancement project is
3-22 completed may apply to the commission for certification of the
3-23 project and affected well under this chapter.
3-24 (b) In addition to other requirements of this chapter, the
3-25 operator must include with the application a statement of the cost
3-26 of completing the production enhancement project and any other
3-27 information the commission requires.
4-1 (c) If the commission approves the application, the
4-2 commission shall issue a certificate to the operator. The
4-3 certificate must:
4-4 (1) include identification of the production
4-5 enhancement project and qualifying well;
4-6 (2) state the cost of completing the production
4-7 enhancement project, as determined by the commission; and
4-8 (3) state the date on which the tax exemption takes
4-9 effect, subject to the comptroller's approval of the exemption
4-10 under Section 205.004.
4-11 Sec. 205.004. APPLICATION FOR AND APPROVAL OF TAX EXEMPTION.
4-12 (a) To qualify for the tax exemption provided by this chapter, the
4-13 person responsible for paying the tax must apply to the comptroller
4-14 for the exemption and include with the application the certificate
4-15 issued under Section 205.003 by the commission.
4-16 (b) The comptroller may require a person applying for the
4-17 tax exemption to provide any information necessary to administer
4-18 this section.
4-19 (c) The comptroller shall approve a person's application if
4-20 the hydrocarbons are eligible for the tax exemption.
4-21 (d) The total tax exemptions provided by this chapter for a
4-22 well are equal to the lesser of:
4-23 (1) the total tax due on incremental hydrocarbon
4-24 production from the certified well that occurs on or before the
4-25 third anniversary of the date on which the tax exemption takes
4-26 effect; or
4-27 (2) the cost of completing the production enhancement
5-1 project as stated on the certificate issued under Section 205.003.
5-2 (e) The comptroller may establish procedures as necessary to
5-3 comply with this section and Section 205.007.
5-4 Sec. 205.005. REVOCATION OF CERTIFICATION. (a) The
5-5 commission may revoke a certificate if the commission finds that
5-6 the well was not eligible for that designation at the time of
5-7 certification.
5-8 (b) The commission shall notify the operator and the
5-9 comptroller that the certificate has been revoked.
5-10 (c) A tax exemption granted under this chapter is
5-11 automatically revoked on the date the certificate is revoked, and
5-12 incremental hydrocarbon production from that well on or after the
5-13 day after the date of revocation is not eligible for the tax
5-14 exemption.
5-15 Sec. 205.006. COMMISSION DISCRETION AND RULES. The
5-16 commission has broad discretion in administering this chapter and
5-17 may adopt and enforce any appropriate rules or orders that the
5-18 commission finds necessary to administer this chapter.
5-19 Sec. 205.007. TAX CREDIT. (a) If the tax is paid at the
5-20 full rate provided by Chapter 201 or 202 on incremental hydrocarbon
5-21 production on or after the effective date of the tax exemption
5-22 contained in the well certificate but before the date the
5-23 comptroller approves the application for the tax exemption, the
5-24 operator is entitled to a credit on taxes due under Chapter 201 or
5-25 202 in an amount equal to the tax paid on incremental hydrocarbon
5-26 production during that period.
5-27 (b) To receive a credit, the operator must apply to the
6-1 comptroller for the credit not later than the first anniversary of
6-2 the date the commission certifies the well.
6-3 Sec. 205.008. PENALTIES. (a) A person is subject to the
6-4 penalties that may be imposed under Chapters 85 and 91, Natural
6-5 Resources Code, if the person makes and submits to the commission
6-6 or the comptroller an application, report, or other document that
6-7 is used or intended to be used for a certification, tax exemption,
6-8 or a tax credit under this chapter and the person knows that the
6-9 application, report, or other document contains a false or untrue
6-10 material fact.
6-11 (b) A person is liable to the state for a civil penalty if
6-12 the person, after receiving notice from the commission that the
6-13 person's certificate has been revoked, applies or attempts to apply
6-14 for a tax exemption for that well using the revoked certificate.
6-15 The amount of the penalty may not exceed the sum of:
6-16 (1) $10,000; and
6-17 (2) the difference between the amount of taxes paid or
6-18 attempted to be paid and the amount of taxes due.
6-19 (c) The attorney general may recover a penalty under
6-20 Subsection (b) in a suit brought on behalf of the state. Venue for
6-21 the suit is in Travis County.
6-22 SECTION 5. This Act takes effect September 1, 1995.
6-23 SECTION 6. The importance of this legislation and the
6-24 crowded condition of the calendars in both houses create an
6-25 emergency and an imperative public necessity that the
6-26 constitutional rule requiring bills to be read on three several
6-27 days in each house be suspended, and this rule is hereby suspended.