CS H.B. 655 75(R)BILL ANALYSIS WAYS & MEANS H.B. 655 By: Craddick 2-17-97 Committee Report (Amended) BACKGROUND In the 73rd Legislature, H.B. 1975 was passed to provide severance tax relief for wells which have been returned to active status after three years or more of inactivity. According to the Texas Railroad Commission, the exemption has been responsible for a great number of wells reworked and producing again. The application to apply for that program expired in August, 1995. PURPOSE The bill would provide a new program to allow for a 10-year severance tax exemption for wells that are brought back to production after at least two years of inactivity. The bill also broadens the definition of hydrocarbons that currently receive tax relief under Section 202.056, Tax Code. RULEMAKING AUTHORITY It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency or institution. SECTION BY SECTION ANALYSIS SECTION 1.Amends Section 202.056 (Exemption for Oil and Gas From Wells Previously Inactive), Tax Code, by amending (a)(2) and adding (a)(4). (2) Expands the definition of "Hydrocarbons" to include all hydrocarbon production. The current definition is limited to oil and gas. (4) Defines "Two-year inactive well" to be a well that has not produced in more than one month in the two years prior to application for this exemption. SECTION 2.Amends Section 202.056(b)-(e), and (h), Tax Code, as follows: (b) Expands the qualifications of hydrocarbons for the 10-year severance tax exemption to include hydrocarbons produced from two-year inactive wells. Also requires the Railroad Commission to notify the Comptroller's office if it discovers any information that affects the taxation of the production from a designated well. (c) Requires that if the commission designates a two-year inactive well, under this section, it shall issue a certificate designating the well as such. Establishes the deadline for designation as a two-year inactive well, as February 29, 2000. (d) Establishes the application period for two-year inactive well certification to be September 1, 1997, through August 31, 1999. (e) Establishes that the commission may revoke a certificate for a two-year inactive well for cause. (h) In order to receive a tax credit for taxes paid at the full rate before the comptroller approves an application, the operator must apply to the comptroller for the credit before the expiration of the applicable period for filing a tax refund claim under Section 111.104, Tax Code. SECTION 3.Amends Section 202.056(i)(2), Tax Code, to hold the tax exemptions for two-year inactive wells to the same civil standards and penalties as those for three-year inactive wells. SECTION 4.Effective Date: September 1, 1997. SECTION 5.Emergency Clause. EXPLANATION OF AMENDMENTS Committee Amendment #1 would delete the sentence in Section 1 of the bill, beginning on page 1, line 18: "The commission may designate a well without an application, or an application may be made to the commission for approval under this section."