00 HOUSE BILL NO. 3001 01 "An Act relating to adjustments to oil and gas production tax values based on a 02 percentage of gross value at the point of production for oil and gas produced from leases 03 or properties north of 68 degrees North latitude; relating to monthly installment 04 payments of the oil and gas production tax; relating to the determinations of oil and gas 05 production tax values; relating to oil and gas production tax credits including qualified 06 capital credits for exploration, development, or production; making conforming 07 amendments; and providing for an effective date." 08 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 09  * Section 1. AS 43.55.011(e) is amended to read: 10 (e) There is levied on the producer of oil or gas a tax for all oil and gas 11 produced each calendar year from each lease or property in the state, less any oil and 12 gas the ownership or right to which is exempt from taxation or constitutes a 13 landowner's royalty interest. Except as otherwise provided under (f), (j), (k), and (o) of 01 this section, the tax is equal to the sum of 02 (1) the annual production tax value of the taxable oil and gas as 03 calculated under AS 43.55.160(a)(1), as adjusted by AS 43.55.162 if applicable, 04 multiplied by 25 percent; and 05 (2) the sum, over all months of the calendar year, of the tax amounts 06 determined under (g) of this section. 07  * Sec. 2. AS 43.55.011(g) is amended to read: 08 (g) For each month of the calendar year for which the producer's average 09 monthly production tax value under AS 43.55.160(a)(2) per BTU equivalent barrel of 10 the taxable oil and gas is more than $30, the amount of tax for purposes of (e)(2) of 11 this section is determined by multiplying the monthly production tax value, as  12 adjusted by AS 43.55.162 if applicable, of the taxable oil and gas produced during 13 the month by the tax rate calculated as follows: 14 (1) if the producer's average monthly production tax value per BTU 15 equivalent barrel of the taxable oil and gas for the month is not more than $92.50, the 16 tax rate is 0.4 percent multiplied by the number that represents the difference between 17 that average monthly production tax value per BTU equivalent barrel and $30; or 18 (2) if the producer's average monthly production tax value per BTU 19 equivalent barrel of the taxable oil and gas for the month is more than $92.50, the tax 20 rate is the sum of 25 percent and the product of 0.1 percent multiplied by the number 21 that represents the difference between the average monthly production tax value per 22 BTU equivalent barrel and $92.50, except that the sum determined under this 23 paragraph may not exceed 35 [50] percent. 24  * Sec. 3. AS 43.55.020(a) is amended to read: 25 (a) For a calendar year, a producer subject to tax under AS 43.55.011  26 [AS 43.55.011(e) - (i)] shall pay the tax as follows: 27 (1) an installment payment of the estimated tax levied by 28 AS 43.55.011(e), net of any tax credits applied as allowed by law, is due for each 29 month of the calendar year on the last day of the following month; except as otherwise 30 provided under (2) of this subsection, the amount of the installment payment is the 31 sum of the following amounts, less 1/12 of the tax credits that are allowed by law to be 01 applied against the tax levied by AS 43.55.011(e) for the calendar year, but the amount 02 of the installment payment may not be less than zero: 03 (A) for oil and gas not subject to AS 43.55.011(o) produced 04 from leases or properties in the state outside the Cook Inlet sedimentary basin 05 [BUT NOT SUBJECT TO AS 43.55.011(o)], other than leases or properties 06 subject to AS 43.55.011(f), the greater of 07 (i) zero; or 08 (ii) the sum of 25 percent and the tax rate calculated for 09 the month under AS 43.55.011(g) multiplied by the remainder obtained 10 by subtracting 1/12 of the producer's adjusted lease expenditures for the 11 calendar year of production under AS 43.55.165 and 43.55.170 that are 12 deductible for the leases or properties under AS 43.55.160 from the 13 gross value at the point of production of the oil and gas produced from 14 the leases or properties during the month for which the installment 15 payment is calculated; 16 (B) for oil and gas produced from leases or properties subject 17 to AS 43.55.011(f), the greatest of 18 (i) zero; 19 (ii) zero percent, one percent, two percent, three 20 percent, or four percent, as applicable, of the gross value at the point of 21 production of the oil and gas produced from all leases or properties 22 during the month for which the installment payment is calculated; or 23 (iii) the sum of 25 percent and the tax rate calculated for 24 the month under AS 43.55.011(g) multiplied by the remainder obtained 25 by subtracting 1/12 of the producer's adjusted lease expenditures for the 26 calendar year of production under AS 43.55.165 and 43.55.170 that are 27 deductible for those leases or properties under AS 43.55.160 from the 28 gross value at the point of production of the oil and gas produced from 29 those leases or properties during the month for which the installment 30 payment is calculated; for oil and gas for which an adjustment to the  31 monthly production tax value is made by AS 43.55.162(a) or (b),  01 the same adjustment is made to the remainder under this sub- 02 subparagraph; 03 (C) for oil and gas subject to AS 43.55.011(j), (k), or (o) 04 produced from each lease or property [SUBJECT TO AS 43.55.011(j), (k), OR 05 (o)], the greater of 06 (i) zero; or 07 (ii) the sum of 25 percent and the tax rate calculated for 08 the month under AS 43.55.011(g) multiplied by the remainder obtained 09 by subtracting 1/12 of the producer's adjusted lease expenditures for the 10 calendar year of production under AS 43.55.165 and 43.55.170 that are 11 deductible under AS 43.55.160 for oil or gas, respectively, produced 12 from the lease or property from the gross value at the point of 13 production of the oil or gas, respectively, produced from the lease or 14 property during the month for which the installment payment is 15 calculated; 16 (2) an amount calculated under (1)(C) of this subsection for oil or gas 17 produced from a lease or property subject to AS 43.55.011(j), (k), or (o) may not 18 exceed the product obtained by carrying out the calculation set out in 19 AS 43.55.011(j)(1) or (2) or 43.55.011(o), as applicable, for gas or set out in 20 AS 43.55.011(k)(1) or (2), as applicable, for oil, but substituting in 21 AS 43.55.011(j)(1)(A) or (2)(A) or 43.55.011(o), as applicable, the amount of taxable 22 gas produced during the month for the amount of taxable gas produced during the 23 calendar year and substituting in AS 43.55.011(k)(1)(A) or (2)(A), as applicable, the 24 amount of taxable oil produced during the month for the amount of taxable oil 25 produced during the calendar year; 26 (3) an installment payment of the estimated tax levied by 27 AS 43.55.011(i) for each lease or property is due for each month of the calendar year 28 on the last day of the following month; the amount of the installment payment is the 29 sum of 30 (A) the applicable tax rate for oil provided under 31 AS 43.55.011(i), multiplied by the gross value at the point of production of the 01 oil taxable under AS 43.55.011(i) and produced from the lease or property 02 during the month; and 03 (B) the applicable tax rate for gas provided under 04 AS 43.55.011(i), multiplied by the gross value at the point of production of the 05 gas taxable under AS 43.55.011(i) and produced from the lease or property 06 during the month; 07 (4) any amount of tax levied by AS 43.55.011(e) or (i), net of any 08 credits applied as allowed by law, that exceeds the total of the amounts due as 09 installment payments of estimated tax is due on March 31 of the year following the 10 calendar year of production. 11  * Sec. 4. AS 43.55.023(a) is amended to read: 12 (a) A producer or explorer may take a tax credit for a qualified capital 13 expenditure as follows: 14 (1) notwithstanding that a qualified capital expenditure may be a 15 deductible lease expenditure for purposes of calculating the production tax value of oil 16 and gas under AS 43.55.160(a), unless a credit for that expenditure is taken under 17 AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or AS 43.55.025, a producer or 18 explorer that incurs a qualified capital expenditure may also elect to apply a tax credit 19 against a tax levied by AS 43.55.011(e) in the amount of 20 percent of that 20 expenditure; [HOWEVER, NOT MORE THAN HALF OF THE TAX CREDIT MAY 21 BE APPLIED FOR A SINGLE CALENDAR YEAR;] 22 (2) a producer or explorer may take a credit for a qualified capital 23 expenditure incurred in connection with geological or geophysical exploration or in 24 connection with an exploration well only if the producer or explorer 25 (A) agrees, in writing, to the applicable provisions of 26 AS 43.55.025(f)(2); and 27 (B) submits to the Department of Natural Resources all data 28 that would be required to be submitted under AS 43.55.025(f)(2). 29  * Sec. 5. AS 43.55.023(d) is amended to read: 30 (d) Except as limited by (i) of this section, a person that is entitled to take a tax 31 credit under this section that wishes to transfer the unused credit to another person or 01 obtain a cash payment under AS 43.55.028 may apply to the department for a 02 transferable tax credit certificate [CERTIFICATES]. An application under this 03 subsection must be in a form prescribed by the department and must include 04 supporting information and documentation that the department reasonably requires. 05 The department shall grant or deny an application, or grant an application as to a lesser 06 amount than that claimed and deny it as to the excess, not later than 120 days after the 07 latest of (1) March 31 of the year following the calendar year in which the qualified 08 capital expenditure, well lease expenditure, or carried-forward annual loss for which 09 the credit is claimed was incurred; (2) the date the statement required under 10 AS 43.55.030(a) or (e) was filed for the calendar year in which the qualified capital 11 expenditure, well lease expenditure, or carried-forward annual loss for which the 12 credit is claimed was incurred; or (3) the date the application was received by the 13 department. If, based on the information then available to it, the department is 14 reasonably satisfied that the applicant is entitled to a credit, the department shall issue 15 the applicant a [TWO] transferable tax credit certificate for [CERTIFICATES, 16 EACH FOR HALF OF] the amount of the credit. [THE CREDIT SHOWN ON ONE 17 OF THE TWO CERTIFICATES IS AVAILABLE FOR IMMEDIATE USE. THE 18 CREDIT SHOWN ON THE SECOND OF THE TWO CERTIFICATES MAY NOT 19 BE APPLIED AGAINST A TAX FOR A CALENDAR YEAR EARLIER THAN 20 THE CALENDAR YEAR FOLLOWING THE CALENDAR YEAR IN WHICH 21 THE CERTIFICATE IS ISSUED, AND THE CERTIFICATE MUST CONTAIN A 22 CONSPICUOUS STATEMENT TO THAT EFFECT.] A certificate issued under this 23 subsection does not expire. 24  * Sec. 6. AS 43.55.023(g) is amended to read: 25 (g) The issuance of a transferable tax credit certificate under (d) of this  26 section or former (m) of this section or the purchase of a certificate under 27 AS 43.55.028 does not limit the department's ability to later audit a tax credit claim to 28 which the certificate relates or to adjust the claim if the department determines, as a 29 result of the audit, that the applicant was not entitled to the amount of the credit for 30 which the certificate was issued. The tax liability of the applicant under 31 AS 43.55.011(e) and 43.55.017 - 43.55.180 is increased by the amount of the credit 01 that exceeds that to which the applicant was entitled, or the applicant's available valid 02 outstanding credits applicable against the tax levied by AS 43.55.011(e) are reduced 03 by that amount. If the applicant's tax liability is increased under this subsection, the 04 increase bears interest under AS 43.05.225 from the date the transferable tax credit 05 certificate was issued. For purposes of this subsection, an applicant that is an explorer 06 is considered a producer subject to the tax levied by AS 43.55.011(e). 07  * Sec. 7. AS 43.55.023(l) is amended to read: 08 (l) A producer or explorer may apply for a tax credit for a well lease 09 expenditure incurred in the state [SOUTH OF 68 DEGREES NORTH LATITUDE] 10 after December 31, 2012 [JUNE 30, 2010], as follows: 11 (1) notwithstanding that a well lease expenditure incurred in the state 12 [SOUTH OF 68 DEGREES NORTH LATITUDE] may be a deductible lease 13 expenditure for purposes of calculating the production tax value of oil and gas under 14 AS 43.55.160(a), unless a credit for that expenditure is taken under (a) of this section, 15 AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or AS 43.55.025, a producer or 16 explorer that incurs a well lease expenditure in the state [SOUTH OF 68 DEGREES 17 NORTH LATITUDE] may elect to apply a tax credit against a tax levied by 18 AS 43.55.011(e) in the amount of 40 percent of that expenditure; [A TAX CREDIT 19 UNDER THIS PARAGRAPH MAY BE APPLIED FOR A SINGLE CALENDAR 20 YEAR;] 21 (2) a producer or explorer may take a credit for a well lease 22 expenditure incurred in the state [SOUTH OF 68 DEGREES NORTH LATITUDE] in 23 connection with geological or geophysical exploration or in connection with an 24 exploration well only if the producer or explorer 25 (A) agrees, in writing, to the applicable provisions of 26 AS 43.55.025(f)(2); and 27 (B) submits to the Department of Natural Resources all data 28 that would be required to be submitted under AS 43.55.025(f)(2). 29  * Sec. 8. AS 43.55.023(n) is amended to read: 30 (n) For the purposes of (l) [AND (m)] of this section, a well lease expenditure 31 incurred in the state [SOUTH OF 68 DEGREES NORTH LATITUDE] is a lease 01 expenditure that is 02 (1) directly related to an exploration well, a stratigraphic test well, a 03 producing well, or an injection well other than a disposal well, located in the state 04 [SOUTH OF 68 DEGREES NORTH LATITUDE], if the expenditure is a qualified 05 capital expenditure and an intangible drilling and development cost authorized under 06 26 U.S.C. (Internal Revenue Code), as amended, and 26 C.F.R. 1.612-4, regardless of 07 the elections made under 26 U.S.C. 263(c); in this paragraph, an expenditure directly 08 related to a well includes an expenditure for well sidetracking, well deepening, well 09 completion or recompletion, or well workover, regardless of whether the well is or has 10 been a producing well; or 11 (2) an expense for seismic work conducted within the boundaries of a 12 production or exploration unit. 13  * Sec. 9. AS 43.55.028(e) is amended to read: 14 (e) The department, on the written application of a person to whom a 15 transferable tax credit certificate has been issued under AS 43.55.023(d) or former  16 AS 43.55.023(m) [(m)] or to whom a production tax credit certificate has been issued 17 under AS 43.55.025(f), may use available money in the oil and gas tax credit fund to 18 purchase, in whole or in part, the certificate if the department finds that 19 (1) the calendar year of the purchase is not earlier than the first 20 calendar year for which the credit shown on the certificate would otherwise be allowed 21 to be applied against a tax; 22 (2) [REPEALED 23 (3) REPEALED 24 (4)] the applicant does not have an outstanding liability to the state for 25 unpaid delinquent taxes under this title; 26 (3) [(5)] the applicant's total tax liability under AS 43.55.011(e), after 27 application of all available tax credits, for the calendar year in which the application is 28 made is zero; 29 (4) [(6)] the applicant's average daily production of oil and gas taxable 30 under AS 43.55.011(e) during the calendar year preceding the calendar year in which 31 the application is made was not more than 50,000 BTU equivalent barrels; and 01 (5) [(7)] the purchase is consistent with this section and regulations 02 adopted under this section. 03  * Sec. 10. AS 43.55.028(g) is amended to read: 04 (g) The department may adopt regulations to carry out the purposes of this 05 section, including standards and procedures to allocate available money among 06 applications for purchases under this chapter and claims for refunds under 07 AS 43.20.046 when the total amount of the applications for purchase and claims for 08 refund exceed the amount of available money in the fund. The regulations adopted by 09 the department may not, when allocating available money in the fund under this 10 section, distinguish an application for the purchase of a credit certificate issued under 11 former AS 43.55.023(m) or a claim for refund under AS 43.20.046. 12 * Sec. 11. AS 43.55.160(a) is repealed and reenacted to read: 13 (a) Except as provided in (b) of this section and AS 43.55.162, for the 14 purposes of 15 (1) AS 43.55.011(e), the annual production tax value of taxable oil, 16 gas, or oil and gas subject to this paragraph produced by a producer during a calendar 17 year is equal to the gross value at the point of production of that oil, gas, or oil and 18 gas, respectively, taxable under AS 43.55.011(e), less the producer's lease 19 expenditures under AS 43.55.165 for the calendar year that are applicable to the oil, 20 gas, or oil and gas, as applicable, in that category produced by the producer, as 21 adjusted under AS 43.55.170; this paragraph applies to 22 (A) oil and gas produced during the first 10 consecutive years 23 after the start of sustained production or during the first 10 consecutive years 24 of sustained production after the effective date of this section, whichever is 25 later, from leases or properties north of 68 degrees North latitude that were not, 26 as of January 1, 2008, either within a unit or in commercial production, other 27 than gas produced before 2022 and used in the state; 28 (B) oil and gas not subject to (A) of this paragraph produced 29 from leases or properties north of 68 degrees North latitude other than gas 30 produced before 2022 and used in the state; 31 (C) oil and gas produced from leases or properties in the state 01 outside the Cook Inlet sedimentary basin, no part of which is north of 68 02 degrees North latitude; this subparagraph does not apply to gas produced 03 before 2022 and used in the state; 04 (D) oil produced before 2022 from a lease or property in the 05 Cook Inlet sedimentary basin; 06 (E) gas produced before 2022 from a lease or property in the 07 Cook Inlet sedimentary basin; 08 (F) gas produced before 2022 from a lease or property in the 09 state outside the Cook Inlet sedimentary basin and used in the state; 10 (G) oil and gas produced from a lease or property, no part of 11 which is north of 68 degrees North latitude, other than oil or gas described in 12 (C), (D), (E), or (F) of this paragraph; 13 (2) AS 43.55.011(g), the monthly production tax value of taxable oil, 14 gas, or oil and gas produced by a producer during a calendar month, for which a 15 separate production tax value is required to be calculated under this paragraph, is 16 equal to the gross value at the point of production of that oil, gas, or oil and gas, 17 respectively, taxable under AS 43.55.011(e), less 1/12 of the producer's lease 18 expenditures under AS 43.55.165 for the calendar year that are applicable to the oil, 19 gas, or oil and gas, respectively, in that category produced by the producer during the 20 calendar month, as adjusted under AS 43.55.170; a separate monthly production tax 21 value must be calculated for each category of oil, gas, or oil and gas for which a 22 separate annual production tax value is required to be calculated under (1) of this 23 subsection. 24  * Sec. 12. AS 43.55.160(e) is amended to read: 25 (e) Any adjusted lease expenditures under AS 43.55.165 and 43.55.170 that 26 would otherwise be deductible by a producer in a calendar year but whose deduction 27 would cause an annual production tax value calculated under (a)(1) of this section of 28 taxable oil or gas produced during the calendar year to be less than zero may be used 29 to establish a carried-forward annual loss under AS 43.55.023(b). However, the 30 department shall provide by regulation a method to ensure that, for a period for which 31 a producer's tax liability is limited by AS 43.55.011(j), (k), or (o), any adjusted lease 01 expenditures under AS 43.55.165 and 43.55.170 that would otherwise be deductible 02 by a producer for that period but whose deduction would cause a production tax value 03 calculated under (a)(1)(D), (E), or (F) [(a)(1)(C), (D), OR (E)] of this section to be 04 less than zero are accounted for as though the adjusted lease expenditures had first 05 been used as deductions in calculating the production tax values of oil or gas subject to 06 any of the limitations under AS 43.55.011(j), (k), or (o) that have positive production 07 tax values so as to reduce the tax liability calculated without regard to the limitation to 08 the maximum amount provided for under the applicable provision of AS 43.55.011(j), 09 (k), or (o). Only the amount of those adjusted lease expenditures remaining after the 10 accounting provided for under this subsection may be used to establish a carried- 11 forward annual loss under AS 43.55.023(b). In this subsection, "producer" includes 12 "explorer." 13  * Sec. 13. AS 43.55 is amended by adding a new section to read: 14 Sec. 43.55.162. Reduction of production tax value for certain oil and gas. 15 (a) For purposes of AS 43.55.011(e)(1) and (2), the annual production tax value for a 16 calendar year under AS 43.55.160(a)(1) and the monthly production tax value for a 17 month under AS 43.55.160(a)(2) of oil and gas produced during the first 10 18 consecutive years after the start of sustained production or during the first 10 19 consecutive years after the effective date of this section, whichever is later, from 20 leases or properties north of 68 degrees North latitude that were not, as of January 1, 21 2008, either within a unit or in commercial production, are reduced by 30 percent of 22 the gross value at the point of production of that oil and gas produced from those 23 leases or properties during the calendar year or during the month respectively. 24 (b) For purposes of AS 43.55.011(e)(2), the monthly production tax value for 25 a month of oil and gas produced from leases or properties north of 68 degrees North 26 latitude, other than oil and gas subject to (a) of this section, is reduced by 40 percent of 27 the gross value at the point of production of that oil and gas produced during the 28 month from those leases or properties. 29 (c) The annual and monthly production tax value may not be reduced under 30 this section below zero. 31 (d) The tax rate under AS 43.55.011(g) shall be determined before the 01 application of the reduction provided by this section. 02 (e) This section does not apply to gas produced before 2022 and used in the 03 state. 04 (f) If the annual or monthly gross value at the point of production is zero or 05 below, an adjustment is not made under this section. 06  * Sec. 14. AS 43.55.023(m) is repealed. 07 * Sec. 15. The uncodified law of the State of Alaska is amended by adding a new section to 08 read: 09 APPLICABILITY. (a) Sections 7 and 8 of this Act apply to expenditures incurred 10 after December 31, 2012. 11 (b) Sections 1 - 3 and 11 - 13 of this Act apply to oil, gas, or oil and gas produced 12 after December 31, 2012. 13 (c) Sections 4 - 6 of this Act apply to expenditures incurred after December 31, 2011. 14  * Sec. 16. The uncodified law of the State of Alaska is amended by adding a new section to 15 read: 16 RETROACTIVITY. Sections 4 - 6, 9, 10, and 14 of this Act are retroactive to 17 January 1, 2012. 18 * Sec. 17. The uncodified law of the State of Alaska is amended by adding a new section to 19 read: 20 TRANSITION: REGULATIONS. The Department of Revenue may adopt regulations 21 to implement this Act. The regulations take effect under AS 44.62 (Administrative Procedure 22 Act), but not before the effective date of the provision of this Act implemented by the 23 regulations. 24 * Sec. 18. The uncodified law of the State of Alaska is amended by adding a new section to 25 read: 26 REVISOR'S INSTRUCTION. If HCS CSSB 23(RLS) am H passed by the Twenty- 27 Seventh Alaska State Legislature becomes law, the revisor of statutes shall give preference to 28 this Act if a conflict arises among provisions when consolidating these Acts into the Alaska 29 Statutes. 30  * Sec. 19. Sections 1 - 3, 7, 8, and 11 - 13 of this Act take effect January 1, 2013. 31  * Sec. 20. Except as provided in sec. 19 of this Act, this Act takes effect immediately under 01 AS 01.10.070(c).