1-1     By:  Bivins                                            S.B. No. 126

 1-2           (In the Senate - Filed December 11, 1996; January 14, 1997,

 1-3     read first time and referred to Committee on Finance;

 1-4     April 28, 1997, reported adversely, with favorable Committee

 1-5     Substitute by the following vote:  Yeas 12, Nays 0; April 28, 1997,

 1-6     sent to printer.)

 1-7     COMMITTEE SUBSTITUTE FOR S.B. No. 126                   By:  Bivins

 1-8                            A BILL TO BE ENTITLED

 1-9                                   AN ACT

1-10     relating to a tax exemption for hydrocarbon production from certain

1-11     inactive oil and gas leases returned to production.

1-12           BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

1-13           SECTION 1.  Subsection (a), Section 202.056, Tax Code, is

1-14     amended by amending Subdivision (2) and adding Subdivision (4) to

1-15     read as follows:

1-16                 (2)  "Hydrocarbons" means any oil or gas produced from

1-17     a well, including hydrocarbon production.

1-18                 (4)  "Two-year inactive well" means a well that has not

1-19     produced oil or gas in more than one month in the two years

1-20     preceding the date of application for severance tax exemption under

1-21     this section.

1-22           SECTION 2.  Subsections (b), (c), (d), (e), and (h), Section

1-23     202.056, Tax Code, are amended to read as follows:

1-24           (b)  Hydrocarbons produced from a well qualify for a 10-year

1-25     severance tax exemption if the commission designates the well as a

1-26     three-year inactive well or a two-year inactive well.  [The

1-27     commission may designate a well without an application, or an

1-28     application may be made to the commission for approval under this

1-29     section.]  The commission may require an applicant to provide the

1-30     commission with any relevant information required to administer

1-31     this section.  The commission may require additional well tests to

1-32     determine well capability as it deems necessary.  The commission

1-33     shall notify the comptroller in writing immediately if it

1-34     determines that the operation of the three-year inactive well or

1-35     two-year inactive well has been terminated or if it discovers any

1-36     information that affects the taxation of the production from the

1-37     designated well.

1-38           (c)  If the commission designates a three-year inactive well

1-39     under this section, it shall issue a certificate designating the

1-40     well as a three-year inactive well as defined by Subsection (a)(3)

1-41     of this section.  The commission may not designate a three-year

1-42     inactive well under this section after February 29, 1996.  If the

1-43     commission designates a two-year inactive well under this section,

1-44     it shall issue a certificate designating the well as a two-year

1-45     inactive well as defined by Subsection (a)(4) of this section.  The

1-46     commission may not designate a two-year inactive well under this

1-47     section after February 29, 2000.

1-48           (d)  An application for three-year inactive well

1-49     certification shall be made during the period of September 1, 1993,

1-50     through August 31, 1995, to qualify for the tax exemption under

1-51     this section.  An application for two-year inactive well

1-52     certification shall be made during the period September 1, 1997,

1-53     through August 31, 1999, to qualify for the tax exemption under

1-54     this section.  Hydrocarbons sold after the date of certification

1-55     are eligible for the tax exemption.

1-56           (e)  The commission may revoke a certificate if information

1-57     indicates that a certified well was not a three-year inactive well

1-58     or a two-year inactive well, as appropriate, or if other lease

1-59     production is credited to the certified well.  Upon notice to the

1-60     operator from the commission that the certificate for tax exemption

1-61     under this section has been revoked, the tax exemption may not be

1-62     applied to hydrocarbons sold from that well from the date of

1-63     revocation.

1-64           (h)  If the tax is paid at the full rate provided by Section

 2-1     201.052(a), 201.052(b), 202.052(a), or 202.052(b) before the

 2-2     comptroller approves an application for an exemption provided for

 2-3     in this chapter, the operator is entitled to a credit against taxes

 2-4     imposed by this chapter in an amount equal to the tax paid.  To

 2-5     receive a credit, the operator must apply to the comptroller for

 2-6     the credit before the expiration of the applicable period for

 2-7     filing a tax refund claim under Section 111.104 [not later than the

 2-8     first anniversary after the date the commission certifies that the

 2-9     well is a three-year inactive well].

2-10           SECTION 3.  Subdivision (2), Subsection (i), Section 202.056,

2-11     Tax Code, is amended to read as follows:

2-12                 (2)  Upon notice from the commission that the

2-13     certification for a three-year inactive well or a two-year inactive

2-14     well has been revoked, the tax exemption shall not apply to oil or

2-15     gas production sold after the date of notification.  Any person who

2-16     violates this subsection is liable to the state for a civil penalty

2-17     if the person applies or attempts to apply the tax exemption

2-18     allowed by this chapter after the certification for a three-year

2-19     inactive well or a two-year inactive well is revoked.  The amount

2-20     of the penalty may not exceed the sum of:

2-21                       (A)  $10,000; and

2-22                       (B)  the difference between the amount of taxes

2-23     paid or attempted to be paid and the amount of taxes due.

2-24           SECTION 4.  This Act takes effect September 1, 1997.

2-25           SECTION 5.  The importance of this legislation and the

2-26     crowded condition of the calendars in both houses create an

2-27     emergency and an imperative public necessity that the

2-28     constitutional rule requiring bills to be read on three several

2-29     days in each house be suspended, and this rule is hereby suspended.

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