1     
INCENTIVES FOR OIL PRODUCTION

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2015 GENERAL SESSION

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STATE OF UTAH

4     
Chief Sponsor: Kevin T. Van Tassell

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House Sponsor: ____________

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7     LONG TITLE
8     General Description:
9          This bill addresses a nonrefundable severance tax credit.
10     Highlighted Provisions:
11          This bill:
12          ▸     addresses a nonrefundable severance tax credit for a working interest owner who
13     pays for all or part of the expenses of a recompletion or workover;
14          ▸     provides a repeal date related to the severance tax credit;
15          ▸     deletes obsolete language; and
16          ▸     makes technical and conforming changes.
17     Money Appropriated in this Bill:
18          None
19     Other Special Clauses:
20          This bill provides retrospective operation.
21     Utah Code Sections Affected:
22     AMENDS:
23          59-5-102, as last amended by Laws of Utah 2013, Chapter 310
24          63I-2-259, as last amended by Laws of Utah 2014, Chapter 256
25     

26     Be it enacted by the Legislature of the state of Utah:
27          Section 1. Section 59-5-102 is amended to read:
28          59-5-102. Severance tax -- Rate -- Computation -- Annual exemption -- Tax credit
29     -- Tax rate reduction.
30          (1) (a) Subject to Subsection (1)(b), a person owning an interest in oil or gas produced
31     from a well in the state, including a working interest, royalty interest, payment out of
32     production, or any other interest, or in the proceeds of the production of oil or gas, shall pay to
33     the state a severance tax on the basis of the value determined under Section 59-5-103.1 of the
34     oil or gas:
35          (i) produced; and
36          (ii) (A) saved;
37          (B) sold; or
38          (C) transported from the field where the substance was produced.
39          (b) This section applies to an interest in oil or gas produced from a well in the state or
40     in the proceeds of the production of oil or gas produced from a well in the state except for:
41          (i) an interest of the United States in oil or gas or in the proceeds of the production of
42     oil or gas;
43          (ii) an interest of the state or a political subdivision of the state in oil or gas or in the
44     proceeds of the production of oil or gas; or
45          (iii) an interest of an Indian or Indian tribe as defined in Section 9-9-101 in oil or gas or
46     in the proceeds of the production of oil or gas produced from land under the jurisdiction of the
47     United States.
48          (2) (a) [Subject to Subsection (2)(d), the] The severance tax rate for oil is as follows:
49          (i) 3% of the value of the oil up to and including the first $13 per barrel for oil; and
50          (ii) 5% of the value of the oil from $13.01 and above per barrel for oil.
51          (b) [Subject to Subsection (2)(d), the] The severance tax rate for natural gas is as
52     follows:
53          (i) 3% of the value of the natural gas up to and including the first $1.50 per MCF for
54     gas; and
55          (ii) 5% of the value of the natural gas from $1.51 and above per MCF for gas.
56          (c) [Subject to Subsection (2)(d), the] The severance tax rate for natural gas liquids is
57     4% of the value of the natural gas liquids.
58          [(d) (i) On or before December 15, 2004, the Office of the Legislative Fiscal Analyst
59     and the Governor's Office of Management and Budget shall prepare a revenue forecast
60     estimating the amount of revenues that:]
61          [(A) would be generated by the taxes imposed by this part for the calendar year
62     beginning on January 1, 2004 had 2004 General Session S.B. 191 not taken effect; and]
63          [(B) will be generated by the taxes imposed by this part for the calendar year beginning
64     on January 1, 2004.]
65          [(ii) Effective on January 1, 2005, the tax rates described in Subsections (2)(a) through
66     (c) shall be:]
67          [(A) increased as provided in Subsection (2)(d)(iii) if the amount of revenues estimated
68     under Subsection (2)(d)(i)(B) is less than the amount of revenues estimated under Subsection
69     (2)(d)(i)(A); or]
70          [(B) decreased as provided in Subsection (2)(d)(iii) if the amount of revenues
71     estimated under Subsection (2)(d)(i)(B) is greater than the amount of revenues estimated under
72     Subsection (2)(d)(i)(A).]
73          [(iii) For purposes of Subsection (2)(d)(ii):]
74          [(A) subject to Subsection (2)(d)(iv)(B):]
75          [(I) if an increase is required under Subsection (2)(d)(ii)(A), the total increase in the tax
76     rates shall be by the amount necessary to generate for the calendar year beginning on January 1,
77     2005 revenues equal to the amount by which the revenues estimated under Subsection
78     (2)(d)(i)(A) exceed the revenues estimated under Subsection (2)(d)(i)(B); or]
79          [(II) if a decrease is required under Subsection (2)(d)(ii)(B), the total decrease in the
80     tax rates shall be by the amount necessary to reduce for the calendar year beginning on January
81     1, 2005 revenues equal to the amount by which the revenues estimated under Subsection
82     (2)(d)(i)(B) exceed the revenues estimated under Subsection (2)(d)(i)(A); and]
83          [(B) an increase or decrease in each tax rate under Subsection (2)(d)(ii) shall be in
84     proportion to the amount of revenues generated by each tax rate under this part for the calendar
85     year beginning on January 1, 2003.]
86          [(iv) (A) The commission shall calculate any tax rate increase or decrease required by
87     Subsection (2)(d)(ii) using the best information available to the commission.]
88          [(B) If the tax rates described in Subsections (2)(a) through (c) are increased or
89     decreased as provided in this Subsection (2)(d), the commission shall mail a notice to each
90     person required to file a return under this part stating the tax rate in effect on January 1, 2005
91     as a result of the increase or decrease.]
92          (3) If oil or gas is shipped outside the state:
93          (a) the shipment constitutes a sale; and
94          (b) the oil or gas is subject to the tax imposed by this section.
95          (4) (a) Except as provided in Subsection (4)(b), if the oil or gas is stockpiled, the tax is
96     not imposed until the oil or gas is:
97          (i) sold;
98          (ii) transported; or
99          (iii) delivered.
100          (b) Notwithstanding Subsection (4)(a), if oil or gas is stockpiled for more than two
101     years, the oil or gas is subject to the tax imposed by this section.
102          (5) A tax is not imposed under this section upon:
103          (a) stripper wells, unless the exemption prevents the severance tax from being treated
104     as a deduction for federal tax purposes;
105          (b) the first 12 months of production for wildcat wells started after January 1, 1990; or
106          (c) the first six months of production for development wells started after January 1,
107     1990.
108          (6) (a) (i) Subject to Subsections (6)[(b)](a)(ii) and [(c)] (iii), a working interest owner
109     who pays for all or part of the expenses of a recompletion or workover may claim a
110     nonrefundable tax credit equal to 20% of the amount paid.
111          [(b)] (ii) The tax credit under Subsection (6)(a)(i) for each recompletion or workover
112     may not exceed $30,000 per well during each calendar year.
113          [(c)] (iii) If any amount of tax credit a taxpayer is allowed under this Subsection (6)(a)
114     exceeds the taxpayer's tax liability under this part for the calendar year for which the taxpayer
115     claims the tax credit, the amount of tax credit exceeding the taxpayer's tax liability for the
116     calendar year may be carried forward for the next three calendar years.
117          (b) (i) Notwithstanding Subsection (6)(a) and subject to Subsections (6)(b)(ii) and (iii),
118     beginning on January 1, 2015, and ending on December 31, 2016, a working interest owner
119     who pays for all or part of the expenses of a recompletion or workover may claim a
120     nonrefundable tax credit equal to 40% of the amount paid.
121          (ii) The tax credit under Subsection (6)(b)(i) for each recompletion or workover may
122     not exceed $750,000 per well during each calendar year.
123          (iii) If any amount of tax credit a taxpayer is allowed under this Subsection (6)(b)
124     exceeds the taxpayer's tax liability under this part for the calendar year for which the taxpayer
125     claims the tax credit, the amount of tax credit exceeding the taxpayer's tax liability for the
126     calendar year may be carried forward for the next three calendar years.
127          (7) A 50% reduction in the tax rate is imposed upon the incremental production
128     achieved from an enhanced recovery project.
129          (8) The taxes imposed by this section are:
130          (a) in addition to all other taxes provided by law; and
131          (b) delinquent, unless otherwise deferred, on June 1 next succeeding the calendar year
132     when the oil or gas is:
133          (i) produced; and
134          (ii) (A) saved;
135          (B) sold; or
136          (C) transported from the field.
137          (9) With respect to the tax imposed by this section on each owner of oil or gas or in the
138     proceeds of the production of those substances produced in the state, each owner is liable for
139     the tax in proportion to the owner's interest in the production or in the proceeds of the
140     production.
141          (10) The tax imposed by this section shall be reported and paid by each producer that
142     takes oil or gas in kind pursuant to agreement on behalf of the producer and on behalf of each
143     owner entitled to participate in the oil or gas sold by the producer or transported by the
144     producer from the field where the oil or gas is produced.
145          (11) Each producer shall deduct the tax imposed by this section from the amounts due
146     to other owners for the production or the proceeds of the production.
147          [(12) (a) The Revenue and Taxation Interim Committee shall review the applicability
148     of the tax provided for in this chapter to coal-to-liquids, oil shale, and tar sands technology on
149     or before the October 2011 interim meeting.]
150          [(b) The Revenue and Taxation Interim Committee shall address in its review the cost
151     and benefit of not applying the tax provided for in this chapter to coal-to-liquids, oil shale, and
152     tar sands technology.]
153          [(c) The Revenue and Taxation Interim Committee shall report its findings and
154     recommendations under this Subsection (12) to the Legislative Management Committee on or
155     before the November 2011 interim meeting.]
156          Section 2. Section 63I-2-259 is amended to read:
157          63I-2-259. Repeal dates -- Title 59.
158          (1) Subsection 59-2-919(10) is repealed December 31, 2015.
159          (2) Subsection 59-2-919.1(4) is repealed December 31, 2015.
160          (3) Subsection 59-5-102(6)(b) is repealed on December 31, 2016.
161          Section 3. Retrospective operation.
162          This bill has retrospective operation to January 1, 2015.




Legislative Review Note
     as of 2-17-15 4:38 PM

Office of Legislative Research and General Counsel