| TO: | Honorable Rene Oliveira, Chair, House Committee on Ways & Means |
| FROM: | John S. O'Brien, Director, Legislative Budget Board |
| IN RE: | HB3332 by Merritt (Relating to an exemption from the oil severance tax for oil produced from certain low-producing wells.), As Introduced |
| Fiscal Year | Probable Net Positive/(Negative) Impact to General Revenue Related Funds |
|---|---|
| 2010 | ($111,254,574) |
| 2011 | ($170,633,497) |
| 2012 | ($109,777,497) |
| 2013 | ($100,531,497) |
| 2014 | ($111,641,497) |
| Fiscal Year | Probable Revenue (Loss) from General Revenue Fund 1 |
Probable Revenue (Loss) from Foundation School Fund 193 |
Probable Revenue (Loss) from Economic Stabilization Fund 599 |
Probable (Cost) from General Revenue Fund 1 |
|---|---|---|---|---|
| 2010 | ($78,213,000) | ($32,888,000) | $0 | ($153,574) |
| 2011 | ($103,501,000) | ($66,946,000) | ($20,450,000) | ($186,497) |
| 2012 | ($24,812,000) | ($84,779,000) | ($97,338,000) | ($186,497) |
| 2013 | $0 | ($100,345,000) | ($229,525,000) | ($186,497) |
| 2014 | $0 | ($111,455,000) | ($301,035,000) | ($186,497) |
| Fiscal Year | Change in Number of State Employees from FY 2009 |
|---|---|
| 2010 | 4.0 |
| 2011 | 4.0 |
| 2012 | 4.0 |
| 2013 | 4.0 |
| 2014 | 4.0 |
The bill would amend Chapter 202 of the Tax Code by adding Section 202.0585 to provide an oil severance tax exemption for a qualifying low-producing oil well whose production during a calendar year averages less than 15 barrels per day. The bill would also cover qualifying wells already under various tax incentives such as enhanced oil recovery (EOR) and in-active well programs.
The bill would require the Railroad Commission (RRC) and the Comptroller's Office to develop rules and procedures to implement the tax exemption. RRC would issue qualifying-well certificates to the Comptroller and producers. RRC could revoke a certificate and the exemption would end on the date of revocation. Taxpayers would have to apply to the Comptroller for the exemption.
The bill provides civil penalties for false information and fraudulent claim of the exemption.
The bill would take effect January 1, 2010, and would apply to crude oil produced on or after that date.
The estimated oil production revenue loss was based on data derived from the Comptroller's tax information and RRC historical production records. Information from the 2010-11 Biennial Revenue Estimate was used in the fiscal analysis. Production from existing EOR tax incentive was included. However, production from inactive wells was excluded since they are fully exempted.
The Railroad Commission indicates that in order to process the applications for the oil production tax exemptions, they will need to hire an additional 4 FTEs at the Administrative Assistant II level. These costs are displayed in column 4 of the above table.
Because the severance tax exemption would lower oil production tax collection, the transfer from General Revenue to the Economic Stabilization Fund (ESF) would be reduced due to the Constitutional requirement that an amount equal to 75 percent of the fiscal year oil production taxes in excess of the net amount received in fiscal year 1987 ($531.871 million) be transferred to the ESF. The remaining 25 percent of the fiscal year oil production taxes in excess of $531.871 million is assumed to be a loss to the Foundation School Fund.
The 2010-11 Biennial Revenue Estimate forecasts that the oil production tax will bring in revenue greater than the ESF transfer threshold of $531.871 million in fiscal years 2010 through 2012. However, for the purpose of this analysis, in fiscal years 2010 through 2012, the oil production tax, with the bill's provisions included, would produce less than the ESF transfer threshold. Therefore, there would also be a loss to the General Revenue Fund, since 75 percent of the total oil production tax below the ESF threshold is deposited into GR (with the remaining 25 percent deposited into the Foundation School Fund). In fiscal years 2013 and 2014, the amount of revenue generated by the tax, with the bill's provisions included, is expected to exceed the ESF threshold; therefore, the General Revenue Fund would not experience a loss. Finally, it should be noted that transfers to the ESF are based on the preceding fiscal year tax collections, so for example, the $20.45 million ESF loss in fiscal year 2011 actually occurred in fiscal year 2010.
| Source Agencies: | 304 Comptroller of Public Accounts, 455 Railroad Commission
|
| LBB Staff: | JOB, MN, SD, KK
|