1     
MINERAL EXPLORATION TAX CREDIT

2     
2022 GENERAL SESSION

3     
STATE OF UTAH

4     
Chief Sponsor: David P. Hinkins

5     
House Sponsor: Steven J. Lund

6     

7     LONG TITLE
8     General Description:
9          This bill enacts a tax credit related to mineral exploration activities.
10     Highlighted Provisions:
11          This bill:
12          ▸     allows a person engaged in the business of mining to claim a tax credit against the
13     person's severance tax liability for the cost of certain mineral exploration activities;
14          ▸     provides a process by which a person may apply for and claim the tax credit; and
15          ▸     makes technical and conforming changes.
16     Money Appropriated in this Bill:
17          None
18     Other Special Clauses:
19          This bill provides retrospective operation.
20     Utah Code Sections Affected:
21     AMENDS:
22          40-6-16, as last amended by Laws of Utah 2019, Chapters 246 and 247
23     ENACTS:
24          40-6-24, Utah Code Annotated 1953
25          59-5-216, Utah Code Annotated 1953
26     

27     Be it enacted by the Legislature of the state of Utah:
28          Section 1. Section 40-6-16 is amended to read:
29          40-6-16. Duties of division.

30          In addition to the duties assigned by the board, the division shall:
31          (1) develop and implement an inspection program that will include but not be limited
32     to production data, pre-drilling checks, and site security reviews;
33          (2) publish a monthly production report;
34          (3) publish a monthly gas processing plant report;
35          (4) review and evaluate, prior to a hearing, evidence submitted with the petition to be
36     presented to the board;
37          (5) require adequate assurance of approved water rights in accordance with rules and
38     orders enacted under Section 40-6-5;
39          (6) notify the county executive of the county in which the drilling will take place in
40     writing of the issuance of a drilling permit; [and]
41          (7) complete the verification of natural gas to hydrogen conversion plants required by
42     Section 59-5-102[.]; and
43          (8) issue tax credit certificates in accordance with Section 40-6-24.
44          Section 2. Section 40-6-24 is enacted to read:
45          40-6-24. Tax credit for mining exploration -- Division to issue certificates.
46          (1) As used in this section:
47          (a) (i) "Certified expenditure" means a cost incurred for an activity in direct support of
48     an exploration activity conducted at a specific site.
49          (ii) "Certified expenditure" includes:
50          (A) the cost of obtaining an approval, a permit, a license, or a certificate for an
51     exploration activity;
52          (B) a direct labor cost and the cost of benefits for employees directly associated with
53     work described in Subsection (1)(a)(i);
54          (C) the cost of leasing equipment from a third party;
55          (D) the cost of owning, maintaining, or operating equipment;
56          (E) insurance and bond premiums associated with the activities described in
57     Subsections (1)(a)(ii)(A) through (D);

58          (F) the cost of a consultant or an independent contractor; and
59          (G) any general expense related to operating the business engaged in the exploration
60     activity to the extent the expense is directly attributable to the work described in Subsection
61     (1)(a)(i).
62          (iii) "Certified expenditure" does not include:
63          (A) return on investment; or
64          (B) insurance or bond premiums not described in Subsection (1)(a)(ii)(E).
65          (b) "Closed mine" means a mine that:
66          (i) previously operated;
67          (ii) does not currently operate; and
68          (iii) for which each mining approval, permit, license, or certificate that allowed the
69     mine to operate is no longer in effect.
70          (c) "Construction commencement date of a new mine" means the earliest date on
71     which each of the following is true:
72          (i) the owner or owner's agent obtains for the mine each of the following that a
73     reasonable and prudent person would consider adequate to commence construction of a mine:
74          (A) each federal, state, or local government approval, permit, license, and certificate;
75     and
76          (B) each right in land, including each permit, lease, and title;
77          (ii) each approval, permit, license, and certificate described in Subsection (1)(c)(i)(A)
78     is in effect without any modification that might jeopardize the completion or continued
79     construction of the mine; and
80          (iii) the construction, including the continuation of construction, is not temporarily or
81     permanently enjoined by an order or other decision of a court or administrative body.
82          (d) "Eligible claimant" means a person who:
83          (i) is engaged in the business of mining or extracting minerals;
84          (ii) is subject to a severance tax under Title 59, Chapter 5, Part 2, Mining Severance
85     Tax; and

86          (iii) makes a certified expenditure during the taxable year.
87          (e) (i) "Exploration activity" means an activity performed in the state for the purpose of
88     determining the existence, location, extent, or quality of a mineral deposit.
89          (ii) "Exploration activity" includes:
90          (A) surveying by a geophysical method or by a geochemical method;
91          (B) drilling one or more exploration holes;
92          (C) conducting underground exploration;
93          (D) surface trenching or bulk sampling;
94          (E) taking aerial photographs;
95          (F) geological and geophysical logging;
96          (G) sample analysis; and
97          (H) metallurgical testing.
98          (iii) "Exploration activity" does not include an activity that occurs:
99          (A) after the construction commencement date of a new mine; or
100          (B) if the mine is or was a closed mine, after the mine reopening date.
101          (f) "Geochemical method" means a method of gathering geochemical data, including
102     collecting soil, rock, water, air, vegetation, or any other similar item and performing a chemical
103     analysis on the item.
104          (g) "Geophysical method" means a method of gathering geophysical data that is used in
105     mineral exploration, including seismic, gravity, magnetic, radiometric, radar, electromagnetic,
106     and other remote sensing measurements.
107          (h) "Mine" means the same as that term is defined in Section 59-5-201.
108          (i) "Mine reopening date" means with respect to a closed mine, the earliest date on
109     which each of the following is true:
110          (i) the owner or owner's agent obtains for the closed mine each of the following that a
111     reasonable and prudent person would consider adequate to begin operation of a closed mine:
112          (A) each federal, state, or local government approval, permit, license, and certificate;
113     and

114          (B) each right in land, including each permit, lease, and title;
115          (ii) each approval, permit, license, and certificate described in Subsection (1)(i)(i)(A) is
116     in effect without any modification that might jeopardize resuming operation of the closed mine;
117     and
118          (iii) resuming operation of the closed mine is not temporarily or permanently enjoined
119     by an order or other decision of a court or administrative body.
120          (j) "Mineral" means a metalliferous mineral as defined in Section 59-5-201.
121          (k) "Tax credit certificate" means a certificate issued by the division that:
122          (i) lists the eligible claimant's name and taxpayer identification number;
123          (ii) lists the amount of the eligible claimant's tax credit authorized under this section
124     for a taxable year; and
125          (iii) includes other information as determined by the division.
126          (2) An eligible claimant that seeks to claim a tax credit under Section 59-5-216 for a
127     taxable year shall apply to the division for a tax credit certificate.
128          (3) The eligible claimant shall apply for a tax credit certificate on a form provided by
129     the division and approved by the State Tax Commission.
130          (4) The eligible claimant shall include in the application for a tax credit certificate the
131     following information for the taxable year in which the person seeks a tax credit certificate:
132          (a) proof that the eligible claimant satisfies the requirements of Subsection (1)(d);
133          (b) a description of the mine where the exploration activity occurred;
134          (c) proof of each certified expenditure, including the amount; and
135          (d) any other information the division requests.
136          (5) (a) After the division receives an application for a tax credit certificate, for each
137     expenditure in the application, the division shall approve the expenditure as a certified
138     expenditure or deny the expenditure as an expenditure that is not a certified expenditure.
139          (b) If the division denies an expenditure, the division shall provide the person a written
140     explanation that states each reason the division denied the expenditure and give the person an
141     opportunity to correct any deficiency or provide additional information.

142          (6) (a) The tax credit certificate shall state the amount of the tax credit, which is equal
143     to the amount of the eligible claimant's certified expenditures as approved by the division in
144     accordance with Subsection (5).
145          (b) The division may not issue a tax credit certificate for certified expenditures related
146     to exploration activities at a mine if the aggregate value of tax credit certificates issued for
147     certified expenditures related to exploration activities at the same mine exceeds $20,000,000.
148          (7) (a) An eligible claimant may assign a tax credit certificate to another person if the
149     eligible claimant provides written notice to the division in a form prescribed by the division,
150     that includes:
151          (i) the eligible claimant's written certification or other proof that the eligible claimant
152     irrevocably elects not to claim the tax credit authorized by the tax credit certificate; and
153          (ii) contact information for the person to whom the eligible claimant is assigning the
154     tax credit certificate.
155          (b) If the eligible claimant meets the requirements of Subsection (7)(a), the division
156     shall issue an assigned tax credit certificate to the person identified by the eligible claimant in
157     an amount equal to the eligible claimant's tax credit certificate.
158          (c) A person to whom an eligible claimant assigns a tax credit certificate may claim the
159     tax credit under Section 59-5-216 as if the person met the requirements of Section 59-5-216, if
160     the person files a return under Title 59, Chapter 5, Part 2, Mining Severance Tax.
161          (8) An eligible claimant that receives a tax credit certificate in accordance with this
162     section shall retain the tax credit certificate for the same time period that a person is required to
163     keep books and records under Section 59-1-1406.
164          (9) The division shall annually submit to the State Tax Commission an electronic list
165     that includes:
166          (a) the name and identifying information for:
167          (i) each eligible claimant to whom the division issues a tax credit certificate; and
168          (ii) each person to whom an eligible claimant assigns a tax credit certificate in
169     accordance with Subsection (7);

170          (b) for each person described in Subsection (9)(a), the amount of the tax credit stated
171     on the tax credit certificate; and
172          (c) for each person described in Subsection (9)(a)(ii), information necessary to identify
173     the tax credit certificate that the eligible claimant assigned to the person.

174          (10) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act,
175     the division may make rules governing the administration of the tax credit certificate process
176     described in this section.
177          Section 3. Section 59-5-216 is enacted to read:
178          59-5-216. Tax credit for mining exploration.
179          (1) As used in this section:
180          (a) "Eligible claimant" means a person:
181          (i) who is an eligible claimant as defined in Section 40-6-24 and obtains a tax credit
182     certificate; or
183          (ii) to whom a person described in Subsection (1)(a)(i) assigns a tax credit certificate
184     and obtains an assigned tax credit certificate in accordance with Section 40-6-24.
185          (b) "Tax credit certificate" means the same as that term is defined in Section 40-6-24.
186          (2) Subject to Subsection (3), an eligible claimant may claim a nonrefundable tax credit
187     against severance tax otherwise due under this part in an amount equal to the amount stated on
188     the tax credit certificate for the taxable year.
189          (3) An eligible claimant may not claim in any taxable year a credit under this section
190     that exceeds 30% of the eligible claimant's severance tax liability for the taxable year.
191          (4) An eligible claimant may carry forward to the next 15 taxable years the amount of
192     the eligible claimant's tax credit that exceeds the amount described in Subsection (3).
193          Section 4. Retrospective operation.
194          This bill has retrospective operation for a taxable year beginning on or after January 1,
195     2022.