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STATE OF OKLAHOMA
2nd Session of the 58th Legislature (2022)
CONFERENCE COMMITTEE
SUBSTITUTE FOR
ENGROSSED HOUSE
BILL NO. 3568 By: McBride and Fetgatter of
the House
and
Allen of the Senate
CONFERENCE COMMITTEE SUBSTITUTE
An Act relating to revenue and taxation; creating
the Oklahoma Emission Reduction Technology
Incentive Act; stating legislative findings ;
defining term; creating the Oklahoma Emission
Reduction Technology Rebate Program; providing
rebate for certain documented expe nditures;
requiring administration by the Department of
Environmental Quality and the Oklahoma Tax
Commission; providing for eligibility; requiring
the Department to approve or disapprove claims;
limiting amount of rebate payments; prescribing
procedures if certain limit or balance is
exceeded; creating the Oklahoma Emission
Reduction Technology Incentive Revolving Fund;
stating sources of fund ; providing for
expenditures from fund; providing for transfer of
funds under certain circumstance; requiring the
promulgation of rules; providing sunset of rebate
program; amending 68 O.S. 2021, Section 1001,
which relates to gross production tax; creating
exemption for certain secondary recovery
projects; limiting exemption under certain
circumstances; defining terms ; providing
procedure to qualify for exemption; creating
exemption for certain projects; allowing a refund
for certain projects; prescribing refund
procedure; limiting eligibility for exemptions;
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amending 68 O.S. 2021, Section 1001.3a, which
relates to exemptions from gross production tax;
modifying definitions; modifying exemption
amounts; decreasing total amount of refunds;
clarifying refund procedure; providing for
codification; providing an effective date; and
declaring an emergency.
BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLAHOMA:
SECTION 1. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Secti on 55006 of Title 68, unless there
is created a duplication in numbering, reads as follows:
Sections 1 through 7 of this act shall be known and may be cited
as the "Oklahoma Emission Reduction Technology Incentive Act ".
SECTION 2. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 55007 of Title 68, unless there
is created a duplication in numberi ng, reads as follows:
The Legislature hereby finds that the reduction of emissions
from upstream and midstream oil and gas production, exploration,
completions, gatherings, storage, processing, and transmission
activities serves the interests of the citize ns of Oklahoma and such
emission reduction activities with new and innovative technologies
should be encouraged and incentivized.
SECTION 3. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 55008 of Title 68, unless there
is created a duplication in numbering, reads as follows:
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As used in the Oklahoma Emission Reduction Technology Incentive
Act, "Emission Reduction Project" means and includes, but is not
limited to:
1. Existing and new technology projects that reduce emissions
of regulated pollutants from stationary sources; and
2. Existing and new technology projects that reduce emissions
from upstream and mi dstream oil and gas exploration, production,
completions, gathering, storage, processing, and transmission
activities through the following:
a. the replacement, repair, or retrofit of stationary
compressor engines,
b. the installation of systems and /or equipment to reduce
or eliminate the loss of gas, venti ng of gas, flaring
of gas, or burning of gas using other combustion
control devices, or
c. the installation of emissions monitoring equipment or
devices.
SECTION 4. NEW LAW A new s ection of law to be codified
in the Oklahoma Statute s as Section 55009 of Title 68, unless there
is created a duplication in numbering, reads as follows:
A. Upon the effective date of t his act, there is hereby created
the Oklahoma Emission Reduction Techn ology Rebate Program. There is
hereby created a rebate in the amount of up to twenty -five percent
(25%) of documented expenditures made in this state directly
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attributable to the implementation of a qual ified Emission Reduction
Project.
B. The rebate program shall be administer ed by the Department
of Environmental Quality and the Oklahoma Tax Commission, as
provided in the Oklahoma Emission Reduction Technology Incentive
Act.
C. To be eligible for a rebate payment:
1. The applicant responsible for the implementation o f a
qualified Emission Re duction Project in this state shall submit
documentation to the Department of Environmental Quality no later
than six (6) months after the end of the fisca l year in which the
expenditures were made stating the amount of expen ditures made in
this state directly related to the implementation of the qualified
Emission Reduction Project;
2. The applicant has filed all Oklahoma tax returns and tax
documents which are required by the laws of this state; and
3. The applicant shall provide evidence of a cer tificate of
general liability insurance with a minimum coverage of One Million
Dollars ($1,000,000.00) and a workers ' compensation policy pursuant
to the laws of this state which shall include coverage of employer 's
liability.
D. The Department of Enviro nmental Quality shall approve or
disapprove all claims for a rebate payment and shall notify the
Oklahoma Tax Commission. The Tax Commission shall, upon
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notification of approval from the Department of Environmental
Quality, issue a rebate payment for all approved claims fro m funds
in the Oklahoma Emission Reduction Technology Incentive Revolving
Fund created in Section 5 of this act. Rebate payments from the
fund shall not exceed Ten Million Dollars ($10,000,000 .00) in any
fiscal year. If the amount of approved claims exce eds the amount
specified in this subsection in a fiscal year, payments shall be
made proportionately to all of the parties making a claim prior to
the deadline which is approved by the Department of Environmental
Quality with the amount to be paid to each approved party being
product of the individual claim amount times the percentage
resulting from Ten Million Dollars ($10,000,000.00) divided by the
total amount of approved claims for the period. If an approved
claim is not paid in whole or in part, the u npaid claim or unpaid
portion shall be paid in the following fiscal years in the order in
which the claims are approved by the Department.
E. Approved claims for rebate that exceed the balance of the
Oklahoma Emission Red uction Technology Incentive Revolv ing Fund
created in Section 5 of this act may be paid in part and the unpaid
portion shall be paid upon the fund reaching a sufficient balance in
the order in which the claims are approved by the Department.
SECTION 5. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 55010 of Title 68, unless there
is created a duplication in numbering, reads as follo ws:
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There is hereby created in the State Treasury a revolving fund
for the Oklahoma Tax Commission to be designated the "Oklahoma
Emission Reduction Technology Incentive Revo lving Fund". The fund
shall be a continuing fund, not subject to fiscal year limi tations,
and shall consist of all monies received by the Tax Commissio n from
any public or private donat ions, contributions, and gifts received
for the benefit of the fund an d any amounts appropriated by the
Oklahoma Legislature designated for deposit in t he fund. All monies
accruing to the credit of the fund are hereby appr opriated and may
be budgeted and expended by the Tax Commission for the purpose of
paying rebates as pro vided in this act. Expenditures from the fund
shall be made upon warrants issued by the State Treasurer against
claims filed as prescribed by law with t he Director of the Office of
Management and Enterprise Services for approval and payment. Any
remaining unencumbered balance upon the cessation of the Oklahoma
Emission Reduction Tech nology Rebate Program, as provided in Section
7 of this act, shall be tr ansferred to the General Revenue Fund of
the State of Oklahoma.
SECTION 6. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 55011 of Title 68, unless there
is created a duplication in numbering, reads as follows:
The Department of Environmental Quality and the Oklahoma Tax
Commission shall promulgate rules necessary to implement the
provisions of this act.
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SECTION 7. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 55012 of Title 68, unless there
is created a duplication in numbering, reads as follows:
The Oklahoma Emission Reduction Technology Rebate Program shall
cease on July 1, 2027.
SECTION 8. AMENDATORY 68 O.S. 2021, S ection 1001, is
amended to read as follows:
Section 1001. A. There is hereby levied upon the production of
asphalt, ores bearing lead, zinc, jack and copper a tax equal to
three-fourths of one percent (3/4 of 1%) on the gross value thereof.
B. On or after the effective date of this ac t and except as
provided by paragraph 4 of this subsection, there shall be levied a
tax on the gross value of the production of oil and gas as follows:
1. Upon the production of oil a tax equal to seven percent (7%)
of the gross value of the production of oil based on a per barrel
measurement of forty -two (42) U.S. gallons of two hundred thirty -one
(231) cubic inches per gallon, computed at a temperature of sixty
(60) degrees Fahrenheit;
2. Upon the production of gas a tax equal to seven percent (7%)
of the gross value of the production of gas;
3. Notwithstanding the levies in paragraphs 1 and 2 of this
subsection, the production of oil, gas, or oil and gas from wells
spudded prior to the effective date of this act, and on or after the
effective date of this act, shall be taxed at a rate of five percent
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(5%) commencing with the month of first production for a period of
thirty-six (36) months. Thereafter , the production shall be taxed
as provided in paragraphs 1 and 2 of thi s subsection; and
4. If the provisions of Article XIII -C of the Oklahoma
Constitution are approved by the people pursuant to adoption of
State Question No. 795, the rate of gross prod uction tax imposed by
paragraph 3 of this subsection shall be reduced to two percent (2%)
for the first thirty-six (36) months of production and thereafter
the rate of taxation shall be seven percent (7%).
C. The taxes hereby levied shall also attach to, and are levied
on, what is known as the royalty interest, and the amount of such
tax shall be a lien on such interest.
D. 1. Except as otherwise provided in this section, for
secondary and tertiary recovery projects approved or having an
initial project start date on or after July 1, 2022, all production
which results from s uch secondary and tertiary recovery projects
shall be exempt from the gross production tax levied pursuant to
this section for a period not to exceed five (5) years from the
initial project start date or for a period ending upon the
termination of the seco ndary and tertiary recovery process,
whichever occurs first .
2. For purposes of this subsection , "project start date" means
the date on which the injection of liquids, gases, or other matter
begins on an enhanced recovery project .
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3. For new secondary and tertiary recovery projects approved by
the Oklahoma Corporation Commission on or after July 1, 2022, such
approval shall constitute qualification for an exemption .
4. For all production exempted pursuant to this subsection, a
refund against gross production taxes sha ll be issued as provided in
subsection F of this section .
E. Except as otherwise provided by this section, the production
of oil, gas, or oil and gas from wells drilled but not completed as
of July 1, 2021, which are completed w ith the use of recycled wat er
on or after July 1, 2022, shall earn an exemption from the gross
production tax levied from the date of first sales for a period of
twenty-four (24) months. The exemption provided in this subsection
shall be proportional to th e percentage of the total amount of water
used to complete the well that is recycled water. For all
production exempted pursuant to this subsection, a refund against
gross production taxes shall be issued as provided in subsection F
of this section. For purposes of this subsectio n, "recycled water"
means oil and gas produced water and waste that has been
reconditioned or treated by mechanical or chemical processes into a
reusable form.
F. On or after July 1, 2022, for all oil and gas production
exempt from gross production taxes pursuant to subsections D and E
of this section during a given fiscal year, a refund of gross
production taxes shall be issued to the well operator or a designee
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in the amount of such exempted gross production taxes paid during
such period, subject to the following provisions:
1. A refund shall not be claimed until after the end of the
fiscal year. As used in this subsection, a fiscal year shall be
deemed to begin on Jul y 1 of one calendar year and shall end on June
30 of the subsequent calendar year;
2. Unless otherwise specified, no claims for refunds pursuant
to the provisions of this subsection shall be filed more than
eighteen (18) months after the first day of the fiscal year in which
the refund is first available;
3. Any person claiming a refund pursuant to the exemption
provided in subsections D and E of this section shall file an
application with the Tax Commission which, upon determination of
qualification by the Corporation Commission, shall approve the
application for such exemption;
4. The Tax Commission may require any person claiming a refund
pursuant to the exemption s provided in subsections D and E of this
section to furnish information or records concer ning the exemption
as is deemed necessary by the Tax Commission ;
5. No claims for refu nds pursuant to the provisions of this
subsection shall be filed by or on behalf of persons other than the
operator or a working interest owner of record at the time of
production;
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6. No entity, including subsidiaries of the enti ty, shall be
authorized to receive refunds claimed pursuant to the exemption
provided in subsection D of this section that exceed twenty percent
(20%) of the limitation provided in paragraph 7 of this subsection;
and
7. The total amount of refunds authorized shall not exceed
Fifteen Million Dollars ($15,000,000.00) pursuant to the exemption
provided in subsection D of this section and Ten Million Dollars
($10,000,000.00) pursuant to the exemption provided in subsection E
of this section for any fiscal year. I f the amount of claims for
refunds exceed the limits provided in this paragraph, the Tax
Commission shall determine the percentage of the refund which
establishes the proportionate share of t he refund which may be
claimed by any taxpayer so that the maximum amounts authorized by
this paragraph are not exceeded.
G. On or after July 1, 2022, all persons shall only be entitled
to either the exemption granted pursuant to subsection D or E of
this section for each oil, gas, or oil and gas well drilled or
recompleted in this state. H owever, any person who qualifies for
the exemption granted pursuant to subsection E of this section shall
not be prohibited from qualification for the exemption granted
pursuant to subsection D of this section if the exemption granted
pursuant to subsectio n E of this section has expired.
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H. The Tax Commission shall have the power to require any such
person engaged in mining or the production or the purchase of such
asphalt, mineral ores aforesaid, oil, or gas, or the owner of any
royalty interest therein t o furnish any additional information by it
deemed to be necessary for the purpose of correctly computing the
amount of the tax; and to examine the books, records and fi les of
such person; and shall have power to conduct hearings and c ompel the
attendance of witnesses, and the production of books, records and
papers of any person.
E. I. Any person or any member of any firm or association, or
any officer, official, agent or employee of any corporation who
shall fail or refuse to testify ; or who shall fail or refuse to
produce any books, records or papers which the Tax Commission shall
require; or who shall fail or refuse to furnish any other evidence
or information which t he Tax Commission may require; or who shall
fail or refuse to answ er any competent quest ions which may be put to
him or her by the Tax Commission, touching the business, property,
assets or effects of any such person relating to the gross
production tax imposed by this article or exemption authorized
pursuant to this sec tion or other laws, sh all be guilty of a
misdemeanor, and, upon conviction thereof, shall be punished by a
fine of not more than Five Hundred Dollars ($500.00), or
imprisonment in the jail o f the county where such offense shall have
been committed, for not more than one (1) yea r, or by both such fine
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and imprisonment; and each day of such refusal on the part of such
person shall constitute a separate and distinct offense.
F. J. The Tax Commission shall have the power and authority to
ascertain and determin e whether or not any r eport herein required to
be filed with it is a true and correct report of the gross products,
and of the value thereof, of such person engaged in the mining or
production or purchase of asphalt and ores bearing minerals
aforesaid and of oil and gas. If an y person has made an untrue or
incorrect report of the gross production or value or volume thereof,
or shall have failed or refused to make such report, the Tax
Commission shall, under the rules prescribed by it, ascertain the
correct amount of either, and compute the tax.
G. K. The payment of the taxes herein levied shall be in full,
and in lieu of all taxes by the state, counties, cities, towns,
school districts and o ther municipalities upon any property rights
attached to or inhere nt in the right to the minerals, upon producing
leases for the mining of asphalt and ores bearing lead, zinc, jack
or copper, or for oil, or for gas, upon the mineral rights and
privileges for the minerals aforesaid belonging or appertaining to
land, upon the machinery, applian ces and equipment used in and
around any well producing oil, or gas, or any mine producing asphalt
or any of the mineral ores aforesaid and actually used in the
operation of such well or mine. The payment of gross production tax
shall also be in lieu of a ll taxes upon the oil, gas, asphalt or
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ores bearing minerals hereinbefore mentioned during the tax year in
which the same is produced, and upon any investment in any of the
leases, rights, privileges, minerals or other property descri bed
herein. Any interest in the land, other than that herein
enumerated, and oil in storage, asphalt and ores bearing minerals
hereinbefore named, mined, produced and on hand at the date as of
which property is assessed for general and ad valorem taxation for
any subsequent tax year, shall be assessed and taxed as other
property within the taxing district in which such property is
situated at the time.
H. L. No equipment, material or proper ty shall be exempt from
the payment of ad valorem tax by reason of the payment of the gr oss
production tax except such equipment, machinery, tools, material or
property as is actually necessary and being used and in use in the
production of asphalt or of o res bearing lead, zinc, jack or copper
or of oil or gas. Provided , the exemption shall include the
wellbore and non-recoverable down-hole material, including casing,
actually used in the disposal of waste materials produced with such
oil or gas. It is ex pressly declared that no ice plants, hospitals,
office buildings, garages, residences, g asoline extraction or
absorption plants, water systems, fuel systems, rooming houses and
other buildings, nor any equipment or material used in connection
therewith, shall be exempt from ad valorem tax.
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SECTION 9. AMENDATORY 68 O. S. 2021, Section 1001.3a, is
amended to read as follows:
Section 1001.3a A. As used in this section:
1. Prior to January 1, 2015, "economically at-risk oil or gas
lease" means any oil or gas lease operated at a net loss or at a net
profit which is less than the total gross production tax remitted
for such lease during the previous calendar year;
2. On or after January 1, 2015 , and before January 1, 2022 ,
"economically at-risk oil or gas lease" means any oil or gas lease
with one or more producing wells with an average production volume
per well of ten (10) barrels of oil or sixty (60) MCF of natural gas
per day or less operated at a net loss or at a net profit which i s
less than the total gross production tax remitted for such lease
during the previous c alendar year; and
3. For calendar year 2022 and subsequent calendar years,
"economically at-risk oil or gas lease " means any oil or gas lease
with one or more producin g wells with an average production volume
per well of ten (10) barr els of oil or sixty ( 60) MCF or less of
natural gas per day operated at a net loss or at a net profit which
is less than the total gross production tax remitted for such lease
during the previous calendar year, and any oil lease operating while
the gross value of the productio n of oil is less than Fifty Dollars
($50.00), on an average monthly basis, based on a per-barrel
measurement of forty -two (42) U.S. gallons of two hundred thirty -one
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(231) cubic inches per gallon, computed at a temperature of sixty
(60) degrees Fahrenheit or gas lease operating while the gross value
of the production of gas is less than Three Dollars and fifty cents
($3.50), on an average monthly basis, based on a measur ement of one
million (1,000,000) British thermal units (MMBtu); and
4. "Lease" shall be defined as in Section 1001.2 of this title.
B. When certified as such pursuant to the provisions of this
section, production from an economically at -risk oil or gas lease
shall be eligible for an exemption from the gross production t ax
levied pursuant to subsection B of Section 1001 of this title for
production on such lease during the previous calendar year in the
following amounts:
1. If the gross production tax rat e levied pursuant to
subsection B of Section 1001 of this title was seven percent (7%),
then the exemption shall equal six-sevenths (6/7) of the gross
production tax levied; and
2. If the gross production tax rate levied pursuant to
subsection B of Sectio n 1001 of this title was four percent (4%)
five percent (5%), then the exemption shall e qual three-fourths
(3/4) four-fifths (4/5) of the gross production tax levied ; and
3. If the gross production tax rate levied pursuant to
subsection B of Section 1001 of this title was one percent (1%) or
two percent (2%), no exemptio n shall apply.
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C. For all production exempt from gross production taxes
pursuant to this section, a refund of gross production taxes paid
for production in the previous calendar year in th e amounts
specified in subsection B of this section, subject to the
limitations and prov isions specified in subsections D and J of this
section, shall be issued to the well operator or a designee. For
production in calendar years ending on or before Decem ber 31, 2015,
the refund shall not be claimed until after July 1 of the year
following the year of production. For production in the calendar
year ending December 31, 2016, the refund shall be claimed before
July 1, 2017. The Tax Commission shall not acc ept or pay any claim
for refund filed on or after July 1, 2017.
D. For oil and natural gas produced from qualifying leases in
calendar years 2015 and 2016, the total amount of refunds authorized
in this section for each calendar year shall not exceed Twel ve
Million Five Hundred Thousand Dollars ($12,500,000.00) for all
products combined. For oil and natural gas produced from qualifying
leases in calendar year 2022 and subsequent calendar years , the
total amount of refunds authorized in this section for ea ch calendar
year shall not exceed Ten Million Dollars ($10,000,000.00) for all
products combined. If the amount of claims exceeds Twelve Million
Five Hundred Thousand Dollars ($12,500,000.00) the limits provided
in this subsection, the Tax Commission shal l determine the
percentage of the refund which establishes the propo rtionate share
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of the refund which may be claimed by any taxpayer so that the
maximum amount authorized by this subsection is not exceeded.
E. Any operator making application for an econo mically at-risk
oil or gas lease status under the provisions of this section shall
submit documentation to the Tax Commission, as determined by the Tax
Commission to be appropriate and necessary.
F. For the purposes of this section, determination of the
economically at-risk oil or gas lease status shall be made by
subtracting from the gross revenue of that lease for the previous
calendar year severance taxes, if any, royalty, operating expenses
of the lease to include expendable workover and recompletion c osts
for the previous calendar year, and including overhead costs up to
the maximum overhead percentage allowed by the Council of Petroleum
Accountants Societies (COPAS) guidelines. For the purposes of this
calculation, depreciation, depletion or intangib le drilling costs
shall not be included as lease operating expenses.
G. The Tax Commission shall have sole authority to determine if
an oil or gas lease qualifies for certification as an economically
at-risk oil or gas lease. The Tax Commission shall pro mulgate rules
governing the certification process.
H. Except as provided in subsection I of this section, gross
production tax exemptions under the provisions of this section shall
be limited to production from calendar years 2005, 2006, 2007, 2008,
2009, 2010, 2011, 2012 and 2013 2005 through 2013 and 2022 and
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subsequent calendar years; provided, no claims for refunds for
calendar years provided in this subsection 2013 and before shall be
paid on or after December 31, 2015.
I. Gross production tax exempt ions claimed under the provisions
of this section shall be limited t o production from calendar years
2014, 2015 and 2016; provided, no claims for refunds for the
calendar years 2014 and 2015 shall be claimed or paid more than
eighteen (18) months after the first day of the fiscal year during
which the refund is first avail able. For production in calendar
year 2016, no claim for refund filed on or after July 1, 2017, shall
be claimed or paid.
J. Claims for refunds pursuant to the provisions of this
section for production periods ending on or before December 31,
2016, shall be paid pursuant to the provisions of this subsection.
The claims for refunds referenced herein shall be paid in equal
payments over a period of thirty -six (36) months. The first paymen t
shall be made after July 1, 2018, but prior to August 1, 2018. Th e
Tax Commission shall provide, not later than June 30, 2018, to the
operator or designated interest owner, a schedule of rebates to be
paid out over the thirty -six-month period.
K. Claims for refunds pursuant to the provisions of this
section for production periods beginning and ending on or after
calendar year 2022 shall be paid in the form of a one -time payment.
SECTION 10. This act shall become effective July 1, 2022.
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SECTION 11. It being immediately necessary for the pr eservation
of the public peace, health or safety, an emergency is hereby
declared to exist, by reason whereof this act shall take effect and
be in full force from and after its passage and approval.
58-2-11603 AQH 05/18/22