Senator Kevin T. Van Tassell proposes the following substitute bill:


1     
REVENUE AND TAXATION AMENDMENTS

2     
2016 GENERAL SESSION

3     
STATE OF UTAH

4     
Chief Sponsor: Kevin T. Van Tassell

5     
House Sponsor: Scott H. Chew

6     

7     LONG TITLE
8     General Description:
9          This bill amends certain oil and gas severance tax statutes.
10     Highlighted Provisions:
11          This bill:
12          ▸     defines terms;
13          ▸     clarifies the formula for calculating the oil and gas severance tax; and
14          ▸     makes technical changes.
15     Money Appropriated in this Bill:
16          None
17     Other Special Clauses:
18          This bill provides a special effective date.
19          This bill provides retrospective operation.
20     Utah Code Sections Affected:
21     AMENDS:
22          59-5-102, as last amended by Laws of Utah 2013, Chapter 310
23          59-5-103.1, as enacted by Laws of Utah 2004, Chapter 244
24     

25     Be it enacted by the Legislature of the state of Utah:
26          Section 1. Section 59-5-102 is amended to read:
27          59-5-102. Severance tax -- Rate -- Computation -- Annual exemption -- Tax credit
28     -- Tax rate reduction.
29          (1) [(a) Subject to] As used in this section:
30          (a) "Royalty rate" means the percentage of the interests described in Subsection
31     (2)(b)(i) as defined by a contract between the United States, the state, an Indian, or an Indian
32     tribe and the oil or gas producer.
33          (b) "Taxable value" means the total value of the oil or gas minus:
34          (i) any royalties paid to, or the value of oil or gas taken in kind by, the interest holders
35     described in Subsection (2)(b)(i); and
36          (ii) the total value of oil or gas exempt from severance tax under Subsection (2)(b)(ii).
37          (c) "Taxable volume" means:
38          (i) for oil, the total volume of barrels minus:
39          (A) for an interest described in Subsection (2)(b)(i), the product of the royalty rate and
40     the total volume of barrels; and
41          (B) the number of barrels that are exempt under Subsection (2)(b)(ii); and
42          (ii) for natural gas, the total volume of MCFs minus:
43          (A) for an interest described in Subsection (2)(b)(i), the product of the royalty rate and
44     the total volume of MCFs; and
45          (B) the number of MCFs that are exempt under Subsection (2)(b)(ii).
46          (d) "Total value" means the value, as determined by Section 59-5-103.1, of all oil or
47     gas that is:
48          (i) produced; and
49          (ii) (A) saved;
50          (B) sold; or
51          (C) transported from the field where the oil or gas was produced.
52          (e) "Total volume" means:
53          (i) for oil, the number of barrels:
54          (A) produced; and
55          (B) (I) saved;
56          (II) sold; or
57          (III) transported from the field where the oil was produced; and
58          (ii) for natural gas, the number of MCFs:
59          (A) produced; and
60          (B) (I) saved;
61          (II) sold; or
62          (III) transported from the field where the natural gas was produced.
63          (f) "Value of oil or gas taken in kind" means the volume of oil or gas taken in kind
64     multiplied by the market price for oil or gas at the location where the oil or gas was produced
65     on the date the oil or gas was taken in kind.
66          (2) (a) Except as provided in Subsection [(1)] (2)(b), a person owning an interest in oil
67     or gas produced from a well in the state, including a working interest, royalty interest, payment
68     out of production, or any other interest, or in the proceeds of the production of oil or gas, shall
69     pay to the state a severance tax on [the basis of the value determined under Section 59-5-103.1]
70     the owner's interest in the taxable value of the oil or gas:
71          (i) produced; and
72          (ii) (A) saved;
73          (B) sold; or
74          (C) transported from the field where the substance was produced.
75          (b) [This section applies to an interest in oil or gas produced from a well in the state or
76     in the proceeds of the production of oil or gas produced from a well in the state except for:]
77     The severance tax imposed by Subsection (2)(a) does not apply to:
78          (i) an interest of:
79          (A) the United States in oil or gas or in the proceeds of the production of oil or gas;
80          [(ii) an interest of] (B) the state or a political subdivision of the state in oil or gas or in
81     the proceeds of the production of oil or gas; [or] and
82          [(iii) an interest of] (C) an Indian or Indian tribe as defined in Section 9-9-101 in oil or
83     gas or in the proceeds of the production of oil or gas produced from land under the jurisdiction
84     of the United States[. (2) (a) Subject to Subsection (2)(d), the]; and
85          (ii) the value of:
86          (A) oil or gas produced from stripper wells, unless the exemption prevents the
87     severance tax from being treated as a deduction for federal tax purposes;
88          (B) oil or gas produced in the first 12 months of production for wildcat wells started
89     after January 1, 1990; and
90          (C) oil or gas produced in the first six months of production for development wells
91     started after January 1, 1990.
92          (3) (a) The severance tax on oil shall be calculated as follows:
93          (i) dividing the taxable value by the taxable volume;
94          (ii) (A) multiplying the rate described in Subsection (4)(a)(i) by the portion of the
95     figure calculated in Subsection (3)(a)(i) that is subject to the rate described in Subsection
96     (4)(a)(i); and
97          (B) multiplying the rate described in Subsection (4)(a)(ii) by the portion of the figure
98     calculated in Subsection (3)(a)(i) that is subject to the rate described in Subsection (4)(a)(ii);
99          (iii) adding together the figures calculated in Subsections (3)(a)(ii)(A) and (B); and
100          (iv) multiplying the figure calculated in Subsection (3)(a)(iii) by the taxable volume.
101          (b) The severance tax on natural gas shall be calculated as follows:
102          (i) dividing the taxable value by the taxable volume;
103          (ii) (A) multiplying the rate described in Subsection (4)(b)(i) by the portion of the
104     figure calculated in Subsection (3)(b)(i) that is subject to the rate described in Subsection
105     (4)(b)(i); and
106          (B) multiplying the rate described in Subsection (4)(b)(ii) by the portion of the figure
107     calculated in Subsection (3)(b)(i) that is subject to the rate described in Subsection (4)(b)(ii);
108          (iii) adding together the figures calculated in Subsections (3)(b)(ii)(A) and (B); and
109          (iv) multiplying the figure calculated in Subsection (3)(b)(iii) by the taxable volume.
110          (c) The severance tax on natural gas liquids shall be calculated by multiplying the
111     taxable value of the natural gas liquids by the severance tax rate in Subsection (4)(c).
112          (4) Subject to Subsection (8):
113          (a) the severance tax rate for oil is as follows:
114          (i) 3% of the taxable value of the oil up to and including the first $13 per barrel for oil;
115     and
116          (ii) 5% of the taxable value of the oil from $13.01 and above per barrel for oil[.];
117          (b) [Subject to Subsection (2)(d),] the severance tax rate for natural gas is as follows:
118          (i) 3% of the taxable value of the natural gas up to and including the first $1.50 per
119     MCF for gas; and
120          (ii) 5% of the taxable value of the natural gas from $1.51 and above per MCF for
121     gas[.]; and
122          (c) [Subject to Subsection (2)(d),] the severance tax rate for natural gas liquids is 4% of
123     the taxable value of the natural gas liquids.
124          [(d) (i) On or before December 15, 2004, the Office of the Legislative Fiscal Analyst
125     and the Governor's Office of Management and Budget shall prepare a revenue forecast
126     estimating the amount of revenues that:]
127          [(A) would be generated by the taxes imposed by this part for the calendar year
128     beginning on January 1, 2004 had 2004 General Session S.B. 191 not taken effect; and]
129          [(B) will be generated by the taxes imposed by this part for the calendar year beginning
130     on January 1, 2004.]
131          [(ii) Effective on January 1, 2005, the tax rates described in Subsections (2)(a) through
132     (c) shall be:]
133          [(A) increased as provided in Subsection (2)(d)(iii) if the amount of revenues estimated
134     under Subsection (2)(d)(i)(B) is less than the amount of revenues estimated under Subsection
135     (2)(d)(i)(A); or]
136          [(B) decreased as provided in Subsection (2)(d)(iii) if the amount of revenues
137     estimated under Subsection (2)(d)(i)(B) is greater than the amount of revenues estimated under
138     Subsection (2)(d)(i)(A).]
139          [(iii) For purposes of Subsection (2)(d)(ii):]
140          [(A) subject to Subsection (2)(d)(iv)(B):]
141          [(I) if an increase is required under Subsection (2)(d)(ii)(A), the total increase in the tax
142     rates shall be by the amount necessary to generate for the calendar year beginning on January 1,
143     2005 revenues equal to the amount by which the revenues estimated under Subsection
144     (2)(d)(i)(A) exceed the revenues estimated under Subsection (2)(d)(i)(B); or]
145          [(II) if a decrease is required under Subsection (2)(d)(ii)(B), the total decrease in the
146     tax rates shall be by the amount necessary to reduce for the calendar year beginning on January
147     1, 2005 revenues equal to the amount by which the revenues estimated under Subsection
148     (2)(d)(i)(B) exceed the revenues estimated under Subsection (2)(d)(i)(A); and]
149          [(B) an increase or decrease in each tax rate under Subsection (2)(d)(ii) shall be in
150     proportion to the amount of revenues generated by each tax rate under this part for the calendar
151     year beginning on January 1, 2003.]
152          [(iv) (A) The commission shall calculate any tax rate increase or decrease required by
153     Subsection (2)(d)(ii) using the best information available to the commission.]
154          [(B) If the tax rates described in Subsections (2)(a) through (c) are increased or
155     decreased as provided in this Subsection (2)(d), the commission shall mail a notice to each
156     person required to file a return under this part stating the tax rate in effect on January 1, 2005
157     as a result of the increase or decrease.]
158          [(3)] (5) If oil or gas is shipped outside the state:
159          (a) the shipment constitutes a sale; and
160          (b) the oil or gas is subject to the tax imposed by this section.
161          [(4)] (6) (a) Except as provided in Subsection [(4)] (6)(b), if the oil or gas is stockpiled,
162     the tax is not imposed until the oil or gas is:
163          (i) sold;
164          (ii) transported; or
165          (iii) delivered.
166          (b) [Notwithstanding Subsection (4)(a), if] If oil or gas is stockpiled for more than two
167     years, the oil or gas is subject to the tax imposed by this section.
168          [(5) A tax is not imposed under this section upon:]
169          [(a) stripper wells, unless the exemption prevents the severance tax from being treated
170     as a deduction for federal tax purposes;]
171          [(b) the first 12 months of production for wildcat wells started after January 1, 1990;
172     or]
173          [(c) the first six months of production for development wells started after January 1,
174     1990.]
175          [(6)] (7) (a) Subject to Subsections [(6)] (7)(b) and (c), a [working interest owner]
176     taxpayer who pays for all or part of the expenses of a recompletion or workover may claim a
177     nonrefundable tax credit equal to 20% of the amount paid.
178          (b) The tax credit under Subsection [(6)] (7)(a) for each recompletion or workover may
179     not exceed $30,000 per well during each calendar year.
180          [(c) If any amount of tax credit a taxpayer is allowed under this Subsection (6) exceeds
181     the taxpayer's tax liability under this part for the calendar year for which the taxpayer claims
182     the tax credit, the amount of tax credit exceeding the taxpayer's tax liability for the calendar
183     year may be carried forward for the next three calendar years.]
184          (c) A taxpayer may carry forward a tax credit allowed under this Subsection (7) for the
185     next three calendar years if the tax credit exceeds the taxpayer's tax liability under this part for
186     the calendar year in which the taxpayer claims the tax credit.
187          [(7)] (8) A 50% reduction in the tax rate is imposed upon the incremental production
188     achieved from an enhanced recovery project.
189          [(8)] (9) The taxes imposed by this section are:
190          (a) in addition to all other taxes provided by law; and
191          (b) delinquent, unless otherwise deferred, on June 1 [next succeeding] following the
192     calendar year when the oil or gas is:
193          (i) produced; and
194          (ii) (A) saved;
195          (B) sold; or
196          (C) transported from the field.
197          [(9)] (10) With respect to the tax imposed by this section on each owner of an interest
198     in the production of oil or gas or in the proceeds of the production of [those substances
199     produced] oil or gas in the state, each owner is liable for the tax in proportion to the owner's
200     interest in the production or in the proceeds of the production.
201          [(10)] (11) The tax imposed by this section shall be reported and paid by each producer
202     that takes oil or gas in kind pursuant to an agreement on behalf of the producer and on behalf of
203     each owner entitled to participate in the oil or gas sold by the producer or transported by the
204     producer from the field where the oil or gas is produced.
205          [(11)] (12) Each producer shall deduct the tax imposed by this section from the
206     amounts due to other owners for the production or the proceeds of the production.
207          [(12) (a) The Revenue and Taxation Interim Committee shall review the applicability
208     of the tax provided for in this chapter to coal-to-liquids, oil shale, and tar sands technology on
209     or before the October 2011 interim meeting.]
210          [(b) The Revenue and Taxation Interim Committee shall address in its review the cost
211     and benefit of not applying the tax provided for in this chapter to coal-to-liquids, oil shale, and
212     tar sands technology.]
213          [(c) The Revenue and Taxation Interim Committee shall report its findings and
214     recommendations under this Subsection (12) to the Legislative Management Committee on or
215     before the November 2011 interim meeting.]
216          Section 2. Section 59-5-103.1 is amended to read:
217          59-5-103.1. Valuation of oil or gas -- Deductions.
218          (1) (a) For purposes of the tax imposed under Section 59-5-102 and subject to
219     Subsection (2), the value of oil or gas shall be determined at the first point closest to the well at
220     which the fair market value for the oil or gas may be determined by:
221          (i) a sale pursuant to an arm's-length contract; or
222          (ii) for a sale other than a sale described in Subsection (1)(a)(i), comparison to other
223     sales of oil or gas.
224          (b) For purposes of determining the fair market value of oil or gas under this
225     Subsection (1), a person subject to a tax under Section 59-5-102 may deduct:
226          (i) all processing costs from the value of[:] oil or gas, including processing costs
227     attributable to the value of oil and gas that is exempt from taxation under Section 59-5-102;
228     and
229          [(A) oil; or]
230          [(B) gas; and]
231          (ii) [(A)] except as provided in Subsection (1)[(b)(ii)(B),](c), all transportation costs
232     from the value of[:]oil or gas, including transportation costs attributable to the value of oil and
233     gas that is exempt from taxation under Section 59-5-102.
234          [(I) oil; and]
235          [(II) gas; and]
236          [(B) notwithstanding Subsection (1)(b)(ii)(A), the]
237          (c) The deduction for transportation costs may not exceed 50% of the value of the[:] oil
238     or gas.
239          [(I) oil; or]
240          [(II) gas.]
241          (2) Subsection (1)(a)(ii) applies to a sale of oil or gas between:
242          (a) a parent company and a subsidiary company;
243          (b) companies wholly owned or partially owned by a common parent company; or
244          (c) companies otherwise affiliated.
245          Section 3. Effective date.
246          If approved by two-thirds of all the members elected to each house, this bill takes effect
247     upon approval by the governor, or the day following the constitutional time limit of Utah
248     Constitution, Article VII, Section 8, without the governor's signature, or in the case of a veto,
249     the date of veto override.
250          Section 4. Retrospective operation.
251          This bill has retrospective operation for a taxable year beginning on or after January 1,
252     2015, and applies to an oil and gas severance tax for any taxable year, including a taxable year
253     beginning before January 1, 2015, that is the subject of an appeal that was filed or pending on
254     or after January 1, 2016.