LEGISLATIVE BUDGET BOARD Austin, Texas FISCAL NOTE 74th Regular Session May 20, 1995 TO: Honorable John T. Montford, Chair IN RE: Committee Substitute Committee on Finance for House Bill Senate No. 398 Austin, Texas By: Lucio FROM: John Keel, Director In response to your request for a Fiscal Note on House Bill No. 398 (relating to the eligibility of certain high-cost gas for a reduction of the gas production tax) this office has determined the following: Under current law, natural gas produced from certain "high cost gas wells" is exempt from the natural gas production tax. Current law applies to wells drilled within the period May 24, 1989 and September 1, 1996. The exemption applies to production from certified wells during the period September 1, 1991 and August 31, 2001. This bill extends the present gas production tax exemption for high cost gas wells to those spudded or completed after September 1, 1996 and before September 1, 2002. Such wells would be subject to a reduced production tax for the first 120 consecutive months of production or until the cumulative value of the tax reduction equals 50 percent of the well drilling and completion costs. The gas production tax applicable to a qualified well would be computed by subtracting from the standard tax levy (7.5% of the market value of gas produced) the product of that tax rate times the ratio of drilling and completion costs incurred for that qualified well to twice the median drilling completion costs for all high-cost wells drilled during the previous state fiscal year. The relevant tax rate would range from just below the standard rate of 7.5% down to a zero levy. The bill would require the Comptroller to calculate and publish as soon as practicable after March 1 of each year the median drilling and completion cost for all high cost gas wells. The first such publication would be due after March 1, 1997. The bill requires production from high cost gas wells spudded or completed between September 1, 1996 and August 31, 1997 to pay the standard tax rate on such production. However, on or after September 1, 1997, eligible producers could request of the Comptroller a refund of any excess taxes paid. The probable fiscal implication of implementing the provisions of the bill during each of the first five years following passage is estimated as follows: The probable fiscal implication of implementing the provisions of the bill during each of the first five years following passage is estimated as follows: Fiscal Probable Revenue Year Loss to General Revenue Fund 001 1996 1997 1998 16,237,117 1999 15,915,501 2000 14,570,283 Similar annual fiscal implications would continue as long as the provisions of the bill are in effect. The fiscal implication to units of local government cannot be determined. Source: Comptroller of Public Accounts, Railroad Commission LBB Staff: JK, CT, DF