85R2759 TJB-D
By: Darby H.B. No. 2621
A BILL TO BE ENTITLED
AN ACT
relating to state and local tax incentives for certain enhanced oil
recovery projects.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Subtitle B, Title 3, Natural Resources Code, is
amended by adding Chapter 93 to read as follows:
CHAPTER 93. ENHANCED OIL RECOVERY REINVESTMENT ZONES
SUBCHAPTER A. GENERAL PROVISIONS
Sec. 93.0001. DEFINITIONS. In this chapter:
(1) "Active operation" means the start and
continuation of an injection program for a tertiary recovery
project to enhance the displacement process in a reservoir.
(2) "Commission" means the Railroad Commission of
Texas.
(3) "Common source of supply" means a common reservoir
as defined by Section 86.002.
(4) "Enhanced recovery reinvestment zone" means an
enhanced recovery reinvestment zone designated by the commission
under Subchapter B.
(5) "Operator" means the person responsible for the
actual physical operation of a tertiary recovery project.
(6) "Payout" means the point at which all costs of
leasing, exploring, drilling, and operating have been recovered
from production of the field as defined by contract.
(7) "Positive production response" means that the rate
of oil production from the wells affected by a tertiary recovery
project is greater than the rate that would have occurred without
the project.
(8) "Tertiary recovery method" means a tertiary
recovery method listed in the federal June 1979 energy regulations
referred to in Section 4993, Internal Revenue Code of 1986, or
approved by the United States secretary of the treasury for
purposes of administering Section 4993, Internal Revenue Code of
1986, immediately before that section was repealed.
(9) "Tertiary recovery project" means the use of any
process for the displacement of oil from the earth using a tertiary
recovery method, including the use of an immiscible, miscible,
chemical, thermal, or biological process.
SUBCHAPTER B. DESIGNATION OF ENHANCED RECOVERY REINVESTMENT ZONE
Sec. 93.0051. ELIGIBILITY OF AREA FOR DESIGNATION AS
REINVESTMENT ZONE. An area is eligible to be designated as an
enhanced recovery reinvestment zone if:
(1) the area comprises a single field:
(A) identified through geologic studies on file
with the Bureau of Economic Geology or the United States Department
of Energy; and
(B) that encompasses a Cenozoic Era common source
of supply;
(2) a person is ready to begin active operations of a
tertiary recovery project in the area;
(3) the single field is projected to have a positive
production response as the result of active operations of the
tertiary recovery project not later than the second anniversary of
the date the commission designates the area as an enhanced recovery
reinvestment zone; and
(4) the designation of the area will be reasonably
likely to encourage development or redevelopment and improvement of
property in the reinvestment zone.
Sec. 93.0052. APPLICATION FOR DESIGNATION OF REINVESTMENT
ZONE, OPERATOR OF RECORD, AND TERTIARY RECOVERY PROJECT. (a) A
person may file an application with the commission requesting the
commission to designate:
(1) an area that meets the eligibility requirements of
Section 93.0051 as an enhanced recovery reinvestment zone;
(2) the person as the operator of record of the
tertiary recovery project for the reinvestment zone; and
(3) the tertiary recovery project located in the
reinvestment zone and operated by the person as the tertiary
recovery project for the reinvestment zone.
(b) The person must submit the application on a form
prescribed by the commission. The person must submit with the
application any information required by the commission to assist
the commission in making each designation described by Subsection
(a).
(c) The commission by rule shall prescribe the form of the
application described by this section.
Sec. 93.0053. DESIGNATION OF REINVESTMENT ZONE, OPERATOR OF
RECORD, AND TERTIARY RECOVERY PROJECT. (a) The commission by order
may designate:
(1) an area as an enhanced recovery reinvestment zone
if:
(A) a person files an application under Section
93.0052; and
(B) the commission finds that the area meets the
eligibility requirements prescribed by Section 93.0051;
(2) the person that submitted the application as the
operator of record of the tertiary recovery project for the
reinvestment zone; and
(3) the tertiary recovery project located in the
reinvestment zone and operated by the person as the tertiary
recovery project for the reinvestment zone.
(b) An order designating an area as an enhanced recovery
reinvestment zone must:
(1) make each designation described by Subsection (a);
(2) describe the boundaries of the reinvestment zone
with sufficient definiteness to identify with ordinary and
reasonable certainty the area included in the reinvestment zone;
(3) contain findings that:
(A) the designation of the reinvestment zone will
be reasonably likely to encourage development or redevelopment and
improvement of property in the reinvestment zone; and
(B) the area meets the eligibility requirements
prescribed by Section 93.0051; and
(4) include any other information the commission
considers necessary to administer the designations made under this
section.
(c) The commission may not issue an order under this section
until the commission has conducted a public hearing on the
designations at which members of the public are given the
opportunity to be heard.
Sec. 93.0054. TRANSFER OF DESIGNATION AS OPERATOR OF
RECORD. (a) The designation of a person as an operator of record
under Section 93.0053 may be transferred to another person only if
the transfer is approved by written order of the commission.
(b) If the commission approves the transfer of a designation
under this section, the commission must by order designate the
person to which the designation is transferred as the operator of
record for the applicable enhanced recovery reinvestment zone.
Sec. 93.0055. CERTIFICATION OF DESIGNATIONS TO
COMPTROLLER. (a) The commission shall certify to the comptroller
each designation made by the commission under Sections 93.0053 and
93.0054.
(b) The commission must make each certification to the
comptroller in writing not later than the seventh day after the date
the commission issues the order making the designation.
Sec. 93.0056. CENTRAL REGISTRY OF DESIGNATIONS. The
commission shall maintain a central registry that includes for each
enhanced recovery reinvestment zone designated by the commission:
(1) the name of the reinvestment zone;
(2) the name of the operator of record for the
reinvestment zone;
(3) the name of the tertiary recovery project for the
reinvestment zone;
(4) each political subdivision that has adopted a tax
benefit under Subchapter C that may be claimed by the operator of
record in the reinvestment zone; and
(5) any other information the commission considers
relevant and important.
Sec. 93.0057. EXPIRATION OF DESIGNATIONS. (a) Except as
provided by Subsection (b), a designation made by the commission
under Section 93.0053 or 93.0054 related to an enhanced recovery
reinvestment zone expires on the earlier of:
(1) the 10th anniversary of the date the commission
adopts the order designating the reinvestment zone; or
(2) the date that payout occurs regarding the field
located in the reinvestment zone.
(b) A designation of an operator of record that is
transferred as authorized by Section 93.0054 expires on the date
the commission adopts the order approving the transfer.
Sec. 93.0058. DESIGNATIONS DO NOT CONSTITUTE UNITIZATION.
The commission's designation of an enhanced recovery reinvestment
zone, operator of record for the reinvestment zone, or tertiary
recovery project for the reinvestment zone do not constitute
unitization of the field located in the reinvestment zone.
Sec. 93.0059. COMMISSION RULES. The commission shall adopt
rules necessary to implement and administer this subchapter. The
commission shall notify the comptroller of any rules adopted under
this section.
SUBCHAPTER C. TAX TREATMENT IN ENHANCED RECOVERY REINVESTMENT ZONE
Sec. 93.0101. LIMITATION ON APPRAISED VALUE OF ELIGIBLE
PROPERTY INTEREST. (a) In this section:
(1) "Eligible property interest" means a property
interest for which a person is entitled to a limitation on appraised
value under Subsection (b).
(2) "Eligible real property" means oil in place that
is part of the common source of supply of a tertiary recovery
project designated by the commission under Subchapter B.
(3) "Hold-harmless appraised value" means the
appraised value of the undivided or fractional interest in oil in
place in an area on January 1 of the tax year in which the area is
designated by the commission as an enhanced recovery reinvestment
zone and that is owned on that date by the person designated by the
commission as the first operator of record for the reinvestment
zone.
(4) "Property interest" means a person's undivided or
fractional interest in eligible real property.
(b) A person is entitled to receive from a political
subdivision a limitation on the appraised value of a property
interest owned by a person if:
(1) the person is designated by the commission under
Section 93.0053 or 93.0054 as the operator of record for an enhanced
recovery reinvestment zone;
(2) the property interest is an interest in eligible
real property located in the reinvestment zone; and
(3) the limitation is adopted by the governing body of
the political subdivision in the manner provided by law for
official action by the governing body.
(c) The amount of the limitation on appraised value that a
person is entitled to receive under Subsection (b) for a tax year is
the amount by which the appraised value of the eligible property
interest exceeds the hold-harmless appraised value applicable to
the enhanced recovery reinvestment zone.
(d) A person who is entitled to receive a limitation on
appraised value from a political subdivision is entitled to receive
the limitation for each tax year:
(1) beginning on or after:
(A) the date the commission designates the
applicable enhanced recovery reinvestment zone; or
(B) a date agreed to by the person and the
political subdivision after the date the commission designates the
applicable reinvestment zone; and
(2) ending on December 31 of the tax year in which the
reinvestment zone expires.
(e) The governing body of a political subdivision that
adopts a limitation on appraised value may not repeal the adoption
of the limitation until the date the applicable enhanced recovery
reinvestment zone expires.
(f) The governing body of a political subdivision may
require a person to enter into a written agreement with the
political subdivision before the political subdivision adopts a
limitation on appraised value of the person's property interest.
The agreement may include:
(1) a requirement that the limitation is conditioned
on a positive production response from the applicable tertiary
recovery project at a certain rate or after a certain date; and
(2) any other provision agreed to regarding the
limitation that is not inconsistent with a provision of this
chapter or other law.
(g) Not later than the 15th day after the date the governing
body of a political subdivision adopts a limitation on appraised
value, the governing body must notify the comptroller and the chief
appraiser of each appraisal district established in a county in
which both the applicable enhanced recovery reinvestment zone and
the political subdivision are located of the governing body's
adoption of the limitation. The governing body must include with
the notification any written agreement entered into under
Subsection (f).
Sec. 93.0102. SALES AND USE TAXES REFUND. (a) On or after
the second anniversary of the date an enhanced recovery
reinvestment zone is designated by the commission under Section
93.0053, a person may apply for a refund of the taxes imposed by
Chapter 151, Tax Code, on the sale or use of a taxable item if:
(1) the taxable item was sold to or used by a person
designated by the commission under Section 93.0053 or 93.0054 as
the operator of record for the reinvestment zone;
(2) the person claiming the refund is the current
operator of record designated by the commission for the
reinvestment zone;
(3) the sale or use occurs on or after the date the
commission designates the reinvestment zone and before the second
anniversary of that date;
(4) the taxable item was directly used or consumed
exclusively in the active operation of the tertiary recovery
project located in the reinvestment zone; and
(5) there was a positive production response as the
result of active operations of the tertiary recovery project before
the second anniversary of the date the commission designates the
reinvestment zone.
(b) A person is eligible for a refund of the taxes imposed by
a political subdivision under Subtitle C, Title 3, Tax Code, on the
sale or use of a taxable item if:
(1) the person is eligible for a refund of state taxes
in relation to the taxable item under Subsection (a); and
(2) the governing body of the political subdivision
authorizes the person to receive refunds of the political
subdivision's taxes in the manner provided by law for official
action by the governing body not later than the 30th day after the
date the commission designates the applicable enhanced recovery
reinvestment zone.
(c) The governing body of a political subdivision that
authorizes a refund of sales and use taxes under Subsection (b) may
not repeal the authorization.
(d) Not later than the 15th day after the date the governing
body of a political subdivision authorizes a refund of sales and use
taxes under Subsection (b), the governing body must notify the
comptroller in writing of the authorization.
(e) A person must apply to the comptroller to receive a
refund of state taxes under Subsection (a).
(f) The comptroller may require a person or political
subdivision to provide any information necessary to administer this
section, including a monthly accounting of the sales and use taxes
paid by the person that are eligible for a refund under this section
and proof that there has been a positive production response as
required by this section.
Sec. 93.0103. SALES AND USE TAXES EXEMPTION. (a) The sale
or use of a taxable item is exempt from the taxes imposed by Chapter
151, Tax Code, if:
(1) the taxable item is sold to or used by a person
designated by the commission under Section 93.0053 or 93.0054 as
the operator of record for an enhanced recovery reinvestment zone;
(2) the sale or use occurs on or after the second
anniversary of the date the commission designates the reinvestment
zone and before the date the reinvestment zone expires;
(3) the taxable item will be directly used or consumed
exclusively in the active operation of the tertiary recovery
project located in the reinvestment zone; and
(4) there was a positive production response on
average during the preceding three months as the result of active
operations of the tertiary recovery project.
(b) The sale or use of a taxable item is exempt from the
taxes imposed by a political subdivision under Subtitle C, Title 3,
Tax Code, if:
(1) the taxable item is exempt from state taxation
under Subsection (a); and
(2) the governing body of the political subdivision
authorizes the exemption in the manner provided by law for official
action by the governing body not later than the 30th day after the
date the commission designates the applicable enhanced recovery
reinvestment zone.
(c) The governing body of a political subdivision that
authorizes an exemption of sales and use taxes under Subsection (b)
may not repeal the authorization until the date the applicable
enhanced recovery reinvestment zone expires.
(d) Not later than the 15th day after the date the governing
body of a political subdivision authorizes an exemption of sales
and use taxes under Subsection (b), the governing body must notify
the comptroller in writing of the authorization.
Sec. 93.0104. OIL PRODUCTION TAX. (a) In this section:
(1) "Hold-harmless production rate" means the average
monthly volume of oil produced from a tertiary recovery project for
the three calendar months preceding the second anniversary of the
date the commission designated the project under this chapter.
(2) "Incremental production" means the volume of oil
produced from a tertiary recovery project in excess of the
applicable hold-harmless production rate.
(b) The incremental production of oil from a tertiary
recovery project designated by the commission under this chapter is
exempt from the taxes imposed under Chapter 202, Tax Code.
(c) The exemption authorized by this section applies only to
oil produced from the tertiary recovery project:
(1) on or after the second anniversary of the date the
commission designates the tertiary recovery project; and
(2) not later than the date the enhanced recovery
reinvestment zone in which the tertiary recovery project is located
expires.
Sec. 93.0105. OTHER TAX BENEFITS. This subchapter does not
limit the eligibility of a person for any other available tax
benefit.
Sec. 93.0106. REINVESTMENT OF TAX BENEFITS. (a) An
operator of record that receives a tax benefit under this
subchapter must invest an amount equal to the total taxes saved as a
result of receiving the tax benefits under this subchapter on:
(1) the development and operation of the applicable
tertiary recovery project; or
(2) the administration of the tertiary recovery
project, including negotiation with mineral, royalty, or working
interest owners.
(b) The operator of record responsible for making the
investment required by this section must invest the required
amount:
(1) on or after the date the applicable tertiary
recovery project is designated by the commission; and
(2) not later than the date the designation of the
tertiary recovery project expires.
(c) An operator of record that receives a tax benefit under
this subchapter must maintain a complete record of the taxes for
which the person would have been liable if the person had not been
entitled to the tax benefit.
Sec. 93.0107. PROVISION OF INFORMATION TO COMPTROLLER. An
operator of record designated under Section 93.0053 or 93.0054 must
provide to the comptroller in the time and manner required by the
comptroller any information necessary for the comptroller to
implement and administer this subchapter.
Sec. 93.0108. COMPTROLLER RULES. (a) The comptroller
shall adopt rules necessary to implement and administer this
subchapter.
(b) An appraisal district must comply with the requirements
of a rule adopted by the comptroller under this section that applies
to a limitation on the appraised value of property interest
authorized by Section 93.0101.
SECTION 2. A person may not file an application with the
Railroad Commission of Texas under Section 93.0052, Natural
Resources Code, as added by this Act, before January 1, 2018.
SECTION 3. The Railroad Commission of Texas shall adopt
rules necessary to implement and administer Subchapter B, Chapter
93, Natural Resources Code, as added by this Act, as soon as
practicable after the effective date of this Act but not later than
January 1, 2018.
SECTION 4. The Railroad Commission of Texas shall prescribe
the application form required by Section 93.0052, Natural Resources
Code, as added by this Act, as soon as practicable after the
effective date of this Act but not later than January 1, 2018.
SECTION 5. The comptroller of public accounts shall adopt
rules necessary to implement and administer Subchapter C, Chapter
93, Natural Resources Code, as added by this Act, as soon as
practicable after the effective date of this Act but not later than
January 1, 2018.
SECTION 6. The changes in law made by this Act do not affect
tax liability related to an enhanced recovery reinvestment zone, as
defined by Section 93.0001, Natural Resources Code, as added by
this Act, that occurs before the date the zone is designated under
Section 93.0053, Natural Resources Code, as added by this Act. That
liability continues in effect as if this Act had not been enacted,
and the former law is continued in effect for the collection of
taxes due and for civil and criminal enforcement of the liability
for those taxes.
SECTION 7. This Act takes effect immediately if it receives
a vote of two-thirds of all the members elected to each house, as
provided by Section 39, Article III, Texas Constitution. If this
Act does not receive the vote necessary for immediate effect, this
Act takes effect September 1, 2017.