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Fourth Substitute S.B. 191
6 LONG TITLE
7 General Description:
8 This bill amends provisions related to fees and severance taxes imposed on oil and gas.
9 Highlighted Provisions:
10 This bill:
11 . addresses how a fee on oil and gas is calculated;
12 . modifies definition provisions;
13 . addresses the imposition of the severance tax on oil and gas including:
14 . how the severance tax is calculated;
15 . severance tax rates;
16 . the valuation of oil and gas for severance tax purposes; and
17 . the filing of required statements; and
18 . requires the State Tax Commission to conduct a study and report to the Revenue
19 and Taxation Interim Committee and the Utah Tax Review Commission.
20 Monies Appropriated in this Bill:
22 Other Special Clauses:
23 This bill has retrospective operation to January 1, 2004.
24 Utah Code Sections Affected:
26 40-6-14, as last amended by Chapter 274, Laws of Utah 2003
27 59-5-101, as last amended by Chapter 271, Laws of Utah 1996
28 59-5-102, as last amended by Chapters 273 and 274, Laws of Utah 2003
29 59-5-104, as last amended by Chapter 341, Laws of Utah 1995
31 59-5-103.1, Utah Code Annotated 1953
33 59-5-103, as last amended by Chapter 247, Laws of Utah 1990
35 Be it enacted by the Legislature of the state of Utah:
36 Section 1. Section 40-6-14 is amended to read:
37 40-6-14. Fee on oil and gas -- Payment of fee -- Collection -- Penalty and interest
38 on delinquencies -- Payment when product taken in-kind -- Interests exempt.
39 (1) (a) There is levied a fee [
40 provided in Subsection (1)(b) for oil and gas:
41 (i) produced; and
42 (ii) (A) saved;
45 (b) The fee imposed under this Subsection (1) is equal to the product of:
46 (i) .002; and
47 (ii) the value of the oil or gas determined in accordance with Section 59-5-103 .
48 (2) (a) The State Tax Commission shall administer the collection of the fee, including
49 any penalties and interest.
50 (b) The monies collected shall be deposited in the Oil and Gas Conservation Account
51 created in Section 40-6-14.5 .
52 (c) Time periods for the State Tax Commission to allow a refund or assess the fee shall
53 be determined in accordance with Section 59-5-114 .
54 (3) (a) Each person having an ownership interest in oil or gas at the time of production
55 shall be liable for a proportionate share of the fee equivalent to [
57 (b) As used in this section "ownership interest" means any:
58 (i) working interest;
59 (ii) royalty interest;
60 (iii) interest in payments out of production; or
61 (iv) any other interest in the oil or gas, or in the proceeds of the oil or gas, subject to
62 the fee.
63 (4) (a) The operator, on behalf of the operator and any person having an ownership
64 interest in the oil or gas, shall pay the fee to the State Tax Commission:
65 (i) quarterly; and
66 (ii) as provided in Subsections (4)(b) and (c).
67 (b) For purposes of Subsection (4)(a), the quarterly fee payments are due as follows:
68 (i) for the quarter beginning on January 1 and ending on March 31, on or before June 1;
69 (ii) for the quarter beginning on April 1 and ending on June 30, on or before September
71 (iii) for the quarter beginning on July 1 and ending on September 30, on or before
72 December 1; and
73 (iv) for the quarter beginning on October 1 and ending on December 31, on or before
74 March 1 of the next year.
75 (c) The fee required by this section shall be reported to the State Tax Commission on
76 forms provided by the State Tax Commission.
77 (5) (a) Any fee not paid within the time specified shall:
78 (i) carry a penalty as provided in Section 59-1-401 ; and
79 (ii) bear interest at the rate and in the manner prescribed in Section 59-1-402 .
80 (b) (i) The fee, together with the interest, shall be a lien upon the oil or gas against
81 which the fee and interest are levied.
82 (ii) The operator shall deduct from any amounts due to the persons owning an interest
83 in the oil or gas, or in the proceeds at the time of production, a proportionate amount of the
84 charge before making payment to the persons.
85 (6) (a) When product is taken in-kind by an interest owner who is not the operator and
86 the operator cannot determine the value of the in-kind product, the operator shall:
87 (i) report 100% of the production;
88 (ii) deduct the product taken in-kind; and
89 (iii) pay the levy on the difference.
90 (b) The interest owner who takes the product in-kind shall file a report and pay the levy
91 on the interest owner's share of production excluded from the operator's report.
92 (7) This section shall apply to any interest in oil or gas produced in the state except:
93 (a) any interest of the United States;
94 (b) any interest of the state or a political subdivision of the state in any oil or gas or in
95 the proceeds of the oil or gas;
96 (c) any interest of any Indian or Indian tribe in any oil or gas or in the proceeds
97 produced from land subject to the supervision of the United States; or
98 (d) oil or gas used in producing or drilling operations or for repressuring or recycling
100 Section 2. Section 59-5-101 is amended to read:
101 59-5-101. Definitions.
102 As used in this part:
103 (1) "Board" means the Board of Oil, Gas and Mining created in Section 40-6-4 .
104 (2) "Condensate" means those hydrocarbons, regardless of gravity, that occur naturally
105 in the gaseous phase in the reservoir that are separated from the natural gas as liquids through
106 the process of condensation either in the reservoir, in the wellbore, or at the surface in field
108 (3) "Crude oil" means those hydrocarbons, regardless of gravity, that occur naturally in
109 the liquid phase in the reservoir and are produced and recovered at the wellhead in liquid form.
111 wildcat well.
113 40, Chapter 6.
115 (a) the injection of liquids or hydrocarbon or nonhydrocarbon gases directly into a
116 reservoir for the purpose of:
117 (i) augmenting reservoir energy[
118 (ii) modifying the properties of the fluids or gases in a reservoir[
119 (iii) changing the reservoir conditions to increase the recoverable oil, gas, or oil and
120 gas through the joint use of two or more well bores; and
121 (b) a project initially approved by the board as a new or expanded enhanced recovery
122 project on or after January 1, 1996.
124 (i) natural gas [
125 (ii) natural gas liquids; or
126 (iii) any mixture [
127 (b) "Gas" does not include solid hydrocarbons.
135 Division of Oil, Gas and Mining, which is achieved from an enhanced recovery project that
136 would not have economically occurred under the reservoir conditions existing before the
137 project and that has been approved by the division as incremental production.
146 (9) "Natural gas" means those hydrocarbons, other than oil and other than natural gas
147 liquids separated from natural gas, that occur naturally in the gaseous phase in the reservoir and
148 are produced and recovered at the wellhead in gaseous form.
149 (10) "Natural gas liquids" means those hydrocarbons initially in reservoir natural gas,
150 regardless of gravity, that are separated in gas processing plants from the natural gas as liquids
151 at the surface through the process of condensation, absorption, adsorption, or other methods.
153 (i) crude oil [
154 (ii) condensate; or
155 (iii) any mixture [
156 (b) "Oil" does not include solid hydrocarbons.
165 The boundaries of oil or gas fields shall conform with the boundaries as fixed by the Board and
166 Division of Oil, Gas and Mining under Title 40, Chapter 6[
167 and Mining.
168 (13) "Operator" means any person engaged in the business of operating an oil or gas
169 well, regardless of whether the person is:
170 (a) a working interest owner;
171 (b) an independent contractor; or
172 (c) acting in a capacity similar to Subsection (13)(a) or (b) as determined by the
173 commission by rule made in accordance with Title 63, Chapter 46a, Utah Administrative
174 Rulemaking Act.
176 payment out of production, or any other interest in the oil or gas produced or extracted from an
177 oil or gas well in the state, or in the proceeds of this production.
179 means the reasonable actual costs of processing [
180 gas to remove:
181 (i) natural gas liquids; or
182 (ii) contaminants.
183 (b) If processing costs are determined on the basis of an arm's-length contract [
184 processing costs are the actual costs. [
185 (c) (i) If processing costs are determined on a basis other than an arm's-length contract,
188 (A) actual operating and maintenance expenses, including oil or gas used or consumed
189 in processing;
190 (B) overhead directly attributable and allocable to the operation and maintenance[
191 and [
192 (C) (I) depreciation and a return on undepreciated capital investment[
193 (II) a cost equal to a return on the investment in the processing facilities as determined
194 by the [
196 (ii) Subsection (15)(c)(i) includes situations where the producer performs the
197 processing for the producer's product.
199 field from which gas or oil is produced.
201 (a) conducted to reestablish the producibility or serviceability of a well in any geologic
202 interval; and
203 (b) approved by the division as a recompletion.
205 the proceeds of production from the oil or gas who does not have the obligation to share in the
206 expenses of developing and operating the property.
208 (i) coal[
209 (ii) gilsonite[
210 (iii) ozocerite[
211 (iv) elaterite[
212 (v) oil shale[
213 (vi) tar sands[
214 (vii) all other hydrocarbon substances that occur naturally in solid form.
216 (a) an oil well whose average daily production for the days the well has produced has
217 been 20 barrels or less of crude oil a day during any consecutive 12-month period; or
218 (b) a gas well whose average daily production for the days the well has produced has
219 been 60 MCF or less of natural gas a day during any consecutive 90-day period.
221 costs" means the reasonable actual costs of transporting oil or gas products from the well to the
222 point of sale [
224 (b) If transportation costs are determined on the basis of an arm's-length contract,
225 transportation costs are the actual costs. [
226 (c) (i) If transportation costs are determined on a basis other than an arm's-length
229 costs associated with [
230 (A) actual operating and maintenance expenses, including fuel used or consumed in
231 transporting the oil or gas;
232 (B) overhead costs directly attributable and allocable to the operation and
234 (C) depreciation and a return on undepreciated capital investment[
238 (ii) Subsection (23)(c)(i) includes situations where the producer performs the
239 transportation for the producer's product.
240 (d) Regardless of whether transportation costs are determined on the basis of an arm's
241 length contract or a basis other than an arm's length contract, transportation costs include:
242 (i) carbon dioxide removal;
243 (ii) compression;
244 (iii) dehydration;
245 (iv) gathering;
246 (v) separating;
247 (vi) treating; or
248 (vii) a process similar to Subsections (21)(d)(i) through (vi), as determined by the
249 commission by rule made in accordance with Title 63, Chapter 46a, Utah Administrative
250 Rulemaking Act.
255 produced or extracted, located within an oil or gas field, and operated by one person.
257 completed in a pool, as defined under Section 40-6-2 , in which a well has not been previously
258 completed as a well capable of producing in commercial quantities.
260 burdened with a share of the expenses of developing and operating the property.
262 (i) conducted to sustain, restore, or increase the producibility or serviceability of a well
263 in the geologic intervals in which the well is currently completed; and
264 (ii) approved by the division as a workover.
265 (b) "Workover" does not include operations that are conducted primarily as routine
266 maintenance or to replace worn or damaged equipment.
267 Section 3. Section 59-5-102 is amended to read:
268 59-5-102. Severance tax -- Rate -- Computation -- Annual exemption -- Tax credit
269 -- Deduction for processing costs and transportation costs -- Study by Tax Review
271 (1) [
272 out of production, or any other interest, in oil or gas produced from a well in the state, or in the
273 proceeds of the production, shall pay to the state a severance tax on the basis of the value[
275 (a) produced[
276 (b) (i) saved[
277 (ii) sold; or
278 (iii) transported from the field where the substance was produced [
281 (2) (a) Subject to Subsection (2)(d), the severance tax rate for oil is as follows:
282 (i) 3% of the value of the oil up to and including the first $13 per barrel for oil; and
283 (ii) 5% of the value of the oil from $13.01 and above per barrel for oil.
285 (b) Subject to Subsection (2)(d), the severance tax rate for natural gas is as follows:
286 (i) 3% of the value of the natural gas up to and including the first $1.50 per MCF for
287 gas; and
288 (ii) 5% of the value of the natural gas from $1.51 and above per MCF for gas.
290 (c) Subject to Subsection (2)(d), the severance tax rate for natural gas liquids is 4% of
291 the [
292 (d) (i) On or before December 15, 2004, the Office of the Legislative Fiscal Analyst
293 and the Governor's Office of Planning and Budget shall prepare a revenue forecast estimating
294 the amount of revenues that:
295 (A) would be generated by the taxes imposed by this part for the calendar year
296 beginning on January 1, 2004 had 2004 General Session S.B. 191 not taken effect; and
297 (B) will be generated by the taxes imposed by this part for the calendar year beginning
298 on January 1, 2004.
299 (ii) Effective on January 1, 2005, the tax rates described in Subsections (2)(a) through
300 (c) shall be:
301 (A) increased as provided in Subsection (2)(d)(iii) if the amount of revenues estimated
302 under Subsection (2)(d)(i)(A) is less than the amount of revenues estimated under Subsection
303 (2)(d)(i)(B); or
304 (B) decreased as provided in Subsection (2)(d)(iii) if the amount of revenues estimated
305 under Subsection (2)(d)(i)(A) is greater than the amount of revenues estimated under
306 Subsection (2)(d)(i)(B).
307 (iii) For purposes of Subsection (2)(d)(ii):
308 (A) subject to Subsection (2)(d)(iv)(B):
309 (I) if an increase is required under Subsection (2)(d)(ii)(A), the total increase in the tax
310 rates shall be by the amount necessary to generate for the calendar year beginning on January 1,
311 2005 revenues equal to the amount by which the revenues estimated under Subsection
312 (2)(d)(i)(A) exceed the revenues estimated under Subsection (2)(d)(i)(B); or
313 (II) if a decrease is required under Subsection (2)(d)(ii)(B), the total decrease in the tax
314 rates shall be by the amount necessary to reduce for the calendar year beginning on January 1,
315 2005 revenues equal to the amount by which the revenues estimated under Subsection
316 (2)(d)(i)(B) exceed the revenues estimated under Subsection (2)(d)(i)(A); and
317 (B) an increase or decrease in each tax rate under Subsection (2)(d)(ii) shall be in
318 proportion to the amount of revenues generated by each tax rate under this part for the calendar
319 year beginning on January 1, 2003.
320 (iv) (A) The commission shall calculate any tax rate increase or decrease required by
321 Subsection (2)(d)(ii) using the best information available to the commission.
322 (B) If the tax rates described in Subsections (2)(a) through (c) are increased or
323 decreased as provided in this Subsection (2)(d), the commission shall mail a notice to each
324 person required to file a return under this part stating the tax rate in effect on January 1, 2005
325 as a result of the increase or decrease.
326 (v) The Office of the Legislative Fiscal Analyst and the Governor's Office of Planning
327 and Budget shall report the estimates prepared in the revenue forecast required by Subsection
328 (2)(d)(i) to the:
329 (A) commission on or before December 15, 2004; and
330 (B) Executive Appropriations Committee on or before January 31, 2005.
335 stockpiled, the tax is not imposed until the oil or gas is:
340 more than two years, the oil or gas is subject to the tax imposed by this section.
342 (a) the first $50,000 annually in gross value of each well or wells as defined in this
343 part, to be prorated among the owners in proportion to their respective interests in the
344 production or in the proceeds of the production;
345 (b) stripper wells, unless the exemption prevents the severance tax from being treated
346 as a deduction for federal tax purposes;
350 1990; or
352 1, 1990.
354 pays for all or part of the expenses of a recompletion or workover may claim a nonrefundable
355 tax credit equal to 20% of the amount paid.
356 (b) The tax credit under Subsection [
357 not exceed $30,000 per well during each calendar year.
358 (c) If any amount of tax credit a taxpayer is allowed under this Subsection [
359 exceeds the taxpayer's tax liability under this part for the calendar year for which the taxpayer
360 claims the tax credit, the amount of tax credit exceeding the taxpayer's tax liability for the
361 calendar year may be carried forward for the next three calendar years.
363 achieved from an enhanced recovery project.
365 (a) in addition to all other taxes provided by law; and
366 (b) delinquent, unless otherwise deferred, on June 1 next succeeding the calendar year
367 when the oil or gas is:
368 (i) [
373 in the proceeds of the production of those substances produced in the state, each owner is liable
374 for the tax in proportion to the owner's interest in the production or in the proceeds of the
377 that takes oil or gas in kind pursuant to agreement on behalf of the producer and on behalf of
378 each owner entitled to participate in the oil or gas sold by the producer or transported by the
379 producer from the field where the oil or gas is produced.
381 due to other owners for the production or the proceeds of the production.
383 part on or before the October 2008 interim meeting.
384 (b) The Tax Review Commission shall address in its review the following statutory
386 (i) the severance tax rate structure provided for in this section;
387 (ii) the exemptions provided for in Subsection [
388 (iii) the tax credit provided for in Subsection [
389 (A) the cost of the tax credit;
390 (B) the purpose and effectiveness of the tax credit; and
391 (C) whether the tax credit benefits the state;
392 (iv) the tax rate reduction provided for in Subsection [
393 (v) other statutory provisions or issues as determined by the Tax Review Commission;
395 (vi) whether the statutory provisions the Tax Review Commission reviews under this
396 Subsection [
397 (A) continued;
398 (B) modified; or
399 (C) repealed.
400 (c) The Tax Review Commission shall report its findings and recommendations
401 regarding the tax provided for in this part to the Revenue and Taxation Interim Committee on
402 or before the November 2008 interim meeting.
403 (13) (a) The commission shall during the 2004 interim:
404 (i) subject to Subsection (13)(b), conduct a study of the effective tax burden for the
405 taxes imposed by this part per barrel of oil or MCF of gas for the time period beginning on
406 January 1, 1984 and ending on September 30, 2004;
407 (ii) study whether the effective tax burden studied under Subsection (13)(a)(i) has
408 increased or decreased;
409 (iii) receive input from the oil and gas industry in conducting the study required by
410 Subsections (13)(a)(i) and (ii);
411 (iv) make findings and recommendations regarding whether any provision of this part
412 should be amended, including:
413 (A) whether any tax rate under this part should be amended;
414 (B) whether a minimum value of oil or gas should be established by statute;
415 (C) whether a limit should be established by statute on the amount of processing costs
416 that may be deducted under Section 59-5-103.1 ; and
417 (D) whether a limit other than the limit established in Section 59-5-103.1 should be
418 established by statute on the amount of transportation costs that may be deducted under Section
419 59-5-103.1 ; and
420 (v) report the findings and recommendations required by Subsection (13)(a)(iv) on or
421 before the October 2004 interim meeting to:
422 (A) the Revenue and Taxation Interim Committee; and
423 (B) the Utah Tax Review Commission.
424 (b) In conducting the study required by Subsections (13)(a)(i) and (ii), the commission
425 shall take into account factors including:
426 (i) the production volume of oil and gas;
427 (ii) the sales price of oil and gas; and
428 (iii) the revenues raised by the taxes imposed by this part for the time period described
429 in Subsection (13)(a)(i).
430 Section 4. Section 59-5-103.1 is enacted to read:
431 59-5-103.1. Valuation of oil or gas -- Deductions.
432 (1) (a) For purposes of the tax imposed under Section 59-5-102 and subject to
433 Subsection (2), the value of oil or gas shall be determined at the first point closest to the well at
434 which the fair market value for the oil or gas may be determined by:
435 (i) a sale pursuant to an arm's length contract; or
436 (ii) for a sale other than a sale described in Subsection (1)(a)(i), comparison to other
437 sales of oil or gas.
438 (b) For purposes of determining the fair market value of oil or gas under Subsection
439 (1), a person subject to a tax under Section 59-5-102 may deduct:
440 (i) processing costs from the value of:
441 (A) oil; or
442 (B) gas; and
443 (ii) (A) except as provided in Subsection (1)(b)(ii)(B), transportation costs from the
444 value of:
445 (I) oil; and
446 (II) gas; and
447 (B) notwithstanding Subsection (1)(b)(ii)(A), the deduction for transportation costs
448 may not exceed 50% of the value of the:
449 (I) oil; or
450 (II) gas.
451 (2) Subsection (1)(a)(ii) applies to a sale of oil or gas between:
452 (a) a parent company and a subsidiary company;
453 (b) companies wholly owned or partially owned by a common parent company; or
454 (c) companies otherwise affiliated.
455 Section 5. Section 59-5-104 is amended to read:
456 59-5-104. Statements filed -- Contents -- Falsification as perjury.
457 (1) (a) Every producer engaged in the production of oil or gas from any well or wells in
458 the state shall file with the commission, on or before June 1 of each year, on forms furnished by
459 the commission, a statement containing the [
460 (1)(b) relating to the oil or gas:
461 (i) produced[
462 (ii) (A) saved[
463 (B) sold; or
464 (C) transported from the [
465 preceding calendar year[
466 (b) The statement required in Subsection (1)(a) shall include:
468 (A) every well or wells; and
469 (B) every field in which the well or wells are located;
471 hydrocarbon substances produced, including the percentage of production from lands held in
472 trust by the United States for any federally recognized Indian tribe or its members;
475 (2) The statements or reports required to be filed with the commission shall be signed
476 and sworn to by the producer or a designee.
477 (3) Any willful false swearing as to the purported material facts set out in this report
478 constitutes the crime of perjury and shall be punished as such under Title 76, Utah Criminal
480 Section 6. Repealer.
481 This bill repeals:
482 Section 59-5-103, Valuation of oil or gas -- Alternatives -- Exceptions --
483 Controversies on value to be determined by commission.
484 Section 7. Retrospective operation.
485 This bill has retrospective operation to January 1, 2004.
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