HB 498: "An Act authorizing tax credits against the production tax on oil and gas for qualified expenditures for challenged or nonconventional oil or gas and for qualified expenditures for nonconventional or renewable energy resources; giving the Act contingent effect; and providing for an effective date."
00 HOUSE BILL NO. 498 01 "An Act authorizing tax credits against the production tax on oil and gas for qualified 02 expenditures for challenged or nonconventional oil or gas and for qualified expenditures 03 for nonconventional or renewable energy resources; giving the Act contingent effect; 04 and providing for an effective date." 05 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 06 * Section 1. AS 43.55 is amended by adding new sections to read: 07 Sec. 43.55.026. Credits for expenditures for challenged or nonconventional 08 oil or gas. (a) Notwithstanding that a qualified expenditure may be a lease expenditure 09 that is deductible for the purpose of calculating the production tax value of oil and gas 10 under AS 43.55.160(a), a producer that incurs a qualified expenditure for challenged 11 or nonconventional oil or gas under this section may also elect to take a tax credit in 12 the amount of 15 percent of that expenditure. A credit under this subsection is in 13 addition to any credit under AS 43.55.024 or 43.55.025 for the same qualified 14 expenditure and may be applied against any and all taxes due under this chapter on the
01 producer's taxable oil and gas production. 02 (b) For a calendar year for which the producer makes an election under 03 AS 43.55.160(f), 04 (1) a producer that incurs a qualified expenditure during that year and 05 that wants to apply a credit based on the annual qualified expenditures against any tax 06 or conservation surcharge due under this chapter, instead of taking a tax credit of 15 07 percent of each separate qualified expenditure for the month when the expenditure is 08 incurred, shall calculate and apply every month an annualized tax credit in an amount 09 equal to one and one-quarter percent of the producer's total qualified expenditures then 10 budgeted to be incurred during that year; and 11 (2) if the total annual amount budgeted by the producer for qualified 12 expenditures changes as the year progresses, then (A) the amount of the total tax under 13 AS 43.55.011 on the producer's taxable oil and gas production that is due each month, 14 and (B) the issue of whether at least 90 percent of the full amount of the tax was paid 15 when due each month must be determined for purposes of AS 43.55.020 based on the 16 amount of the credit under this subsection using the producer's budget for the year's 17 qualified expenditures that was in effect as of the end of the month when the 18 producer's taxable oil or gas was produced; however, nothing in this paragraph 19 changes the requirement that a producer shall report under AS 43.55.030(e) based on 20 the credits under this subsection for its actual qualified expenditures for an entire 21 calendar year and pay any additional tax shown in that annual report. 22 (c) A credit or portion of a credit under this section may not be used to reduce 23 a person's total liability for taxes under this chapter for any month below zero, and any 24 unused credit or portion of a credit not used under this subsection may be applied in a 25 later month. 26 (d) Except as otherwise provided in this subsection, a producer incurring the 27 qualified expenditure giving rise to a credit may not transfer the credit. The producer 28 may transfer the tax credit to an affiliate of the producer that is also a producer subject 29 to this chapter. Both the producer transferring the credit to its producer affiliate and 30 the producer affiliate receiving the credit shall report to the department, on the 31 respective monthly tax statements filed under AS 43.55.030, the tax credit transfer, the
01 amount of the credit transferred, and the month for which the credit arose. 02 (e) A producer may not claim a credit for a qualified expenditure under this 03 section 04 (1) more than once; or 05 (2) for an expenditure made after March 31, 2016. 06 (f) For purposes of this section, an expenditure is a qualified expenditure if it 07 is an ordinary and necessary expenditure incurred for the research, development, or 08 production of challenged or nonconventional oil or gas in this state, or for the 09 research, development, or demonstration of new technology as certified by the 10 department for developing or producing the challenged or nonconventional oil or gas, 11 or a material extension of existing technology as certified by the department. 12 (g) In this section, 13 (1) "challenged oil or gas" means 14 (A) oil that is produced from a reservoir located, in whole or in 15 part, north of 68 degrees, 15 minutes North latitude in this state, without regard 16 to its API gravity or depth, if the oil is produced from 17 (i) the Ugnu Formation or West Sak - Schrader Bluff 18 Formation; or 19 (ii) a formation that is stratigraphically equivalent to a 20 formation described in (i) of this subparagraph; 21 (B) oil that is produced from a reservoir for which, as of 22 January 1, 2006, one of the following participating areas had been formed: the 23 Orion or Polaris participating area in the Prudhoe Bay Unit, the West Sak 24 participating area in the Kuparuk River Unit, or the Schrader Bluff 25 participating area in the Milne Point Unit; 26 (C) oil that has an API gravity of 25 or less produced from a 27 reservoir or field located, in whole or in part, north of 68 degrees, 15 minutes 28 North latitude in this state and at a true vertical depth as measured from sea 29 level of 5,500 feet or less; 30 (D) oil that has an API gravity of 18 or less, regardless of depth 31 or location within this state;
01 (E) oil produced from a reservoir whose reservoir rock is 02 primarily made up of carbonates; 03 (F) oil produced through the application of one or more 04 enhanced oil recovery techniques, including 05 (i) steam injection; 06 (ii) microemulsion flooding; 07 (iii) in situ combustion; 08 (iv) polymer-augmented water-flooding; 09 (v) alkaline or caustic flooding; 10 (vi) immiscible nonhydrocarbon gas displacement; 11 (vii) microbial; 12 (viii) low-salinity water flooding; or 13 (ix) any other method not described in (i) - (viii) of this 14 subparagraph that is certified by the department to be a qualified 15 enhanced oil recovery technique or that is certified by the Alaska Oil 16 and Gas Conservation Commission for purposes of this section; 17 (G) oil requiring ultra-extended reach drilling where the total 18 step-out of the well is greater than 25,000 feet laterally away from the surface 19 hole location; 20 (H) oil production not described in (A) - (F) of this paragraph 21 that is inherently difficult and expensive to produce and is certified by the 22 department to be challenged oil; and 23 (I) gas produced from or in association with oil that is produced 24 as described in (A) - (H) of this paragraph; 25 (2) "nonconventional gas" means 26 (A) gas produced or recovered from or in association with 27 nonconventional oil; 28 (B) gas produced or recovered from or in association with 29 hydrates formed from hydrocarbons, including free gas trapped beneath gas 30 hydrates; 31 (C) gas manufactured from the gasification of coal;
01 (D) tight gas produced from reservoirs with average 02 permeabilities less than 0.1 millidarcies; and 03 (E) gas not described in (A) - (D) of this paragraph that is 04 inherently difficult and expensive to produce and is certified by the department 05 to be nonconventional gas; 06 (3) "nonconventional oil" means: 07 (A) oil produced or recovered from or associated with tar 08 sands; 09 (B) oil produced or recovered from or associated with oil shale; 10 and 11 (C) oil production not described in (A) or (B) of this paragraph 12 that is inherently difficult and expensive to produce and is certified by the 13 department to be nonconventional oil. 14 Sec. 43.55.028. Credits for expenditures for nonconventional or renewable 15 energy sources. (a) Notwithstanding that a qualified expenditure under this section 16 may be deductible or may give rise to a tax credit under AS 43.20 or under any other 17 tax under this title, a producer that incurs a qualified expenditure for the development 18 or use of a nonconventional or renewable energy source may also elect to take a tax 19 credit in the amount of 25 percent of that expenditure. A credit under this subsection 20 may be applied against any tax due under this chapter AS 43.55 on the producer's 21 taxable oil and gas production. 22 (b) For a calendar year for which the producer makes an election under 23 AS 43.55.160(f), 24 (1) a producer that incurs a qualified expenditure during that year and 25 that wants to apply a credit based on the annual qualified expenditures against any tax 26 or conservation surcharge due under this chapter, instead of taking a tax credit of 25 27 percent of each separate qualified expenditure for the month when the expenditure is 28 incurred, shall calculate and apply every month an annualized tax credit in an amount 29 equal to two and one-twelfth percent of the producer's total qualified expenditures then 30 budgeted to be incurred during that year; and 31 (2) if the total annual amount budgeted by the producer for qualified
01 expenditures changes as the year progresses, then (A) the amount of the total tax under 02 AS 43.55.011 on the producer's taxable oil and gas production that is due each month, 03 and (B) the issue of whether at least 90 percent of the full amount of the tax was paid 04 when due each month must be determined for purposes of AS 43.55.020 based on the 05 amount of the credit under this subsection using the producer's budget for the year's 06 qualified expenditures that was in effect as of the end of the month when the 07 producer's taxable oil or gas was produced; however, nothing in this paragraph 08 changes the requirement that a producer must report under AS 43.55.030(e) based on 09 the credits under this subsection for its actual qualified expenditures for an entire 10 calendar year and pay any additional tax shown in that annual report. 11 (c) A credit or portion of a credit under this section may not be used to reduce 12 a person's total liability for taxes under this chapter for any month below zero, and any 13 unused credit or portion of a credit not used under this subsection may be applied in a 14 later month. 15 (d) Except as otherwise provided in this subsection, a producer incurring the 16 qualified expenditure giving rise to a credit may not transfer the credit. The producer 17 may transfer the tax credit to an affiliate of the producer that is also a producer subject 18 to this chapter. Both the producer transferring the credit to its producer affiliate and 19 the producer affiliate receiving the credit shall report to the department, on the 20 respective monthly tax statements filed under AS 43.55.030, the tax credit transfer, the 21 amount of the credit transferred, and the month for which the credit arose. 22 (e) An expenditure for an activity is a qualified expenditure for purposes of 23 this section if it is 24 (1) an ordinary and necessary expenditure for the activity, as "ordinary 25 and necessary" is defined for purposes of 26 U.S.C. 162 (Internal Revenue Code); and 26 (2) incurred for the development or use of a nonconventional or 27 renewable energy source. 28 (f) A producer may not claim a credit for a qualified expenditure under this 29 section 30 (1) more than once; or 31 (2) for an expenditure made after March 31, 2016.
01 (g) In this section, "nonconventional or renewable energy sources" includes 02 (1) solar power; 03 (2) geothermal energy; 04 (3) wind power; 05 (4) nonconventional kinetic energy recovery; 06 (5) exploitation of heat, cold, or another form of energy that is 07 generated from an industrial or manufacturing activity and that would otherwise be 08 dissipated into the environment, including electrical cogeneration; 09 (6) energy that does not involve the consumption or combustion of 10 hydrocarbons; and 11 (7) an energy source not described in (1) - (6) of this subsection that is 12 certified by the department to be a nonconventional or renewable source of energy. 13 * Sec. 2. The uncodified law of the State of Alaska is amended by adding a new section to 14 read: 15 TRANSITION: REGULATIONS AND RETROACTIVITY OF REGULATIONS. (a) 16 The Department of Revenue may proceed to adopt regulations to implement this Act. The 17 regulations take effect under AS 44.62 (Administrative Procedure Act), but not before the 18 effective date of the law implemented by the regulation. 19 (b) Notwithstanding any contrary provision of AS 44.62.240, a regulation adopted by 20 the Department of Revenue to implement, interpret, make specific, or otherwise carry out the 21 provisions of this Act may apply retroactively to the effective date of this Act, if the 22 Department of Revenue expressly designates in the regulation that the regulation applies 23 retroactively to that date. 24 * Sec. 3. The uncodified law of the State of Alaska is amended by adding a new section to 25 read: 26 CONDITIONAL EFFECT OF ACT. This Act takes effect only if the Twenty-Fourth 27 Alaska Legislature passes a bill, and that bill becomes law, in which, among other provisions, 28 the oil and gas properties production (severance) tax is repealed and a production tax on oil 29 and gas based on a percentage of its production tax value is enacted. 30 * Sec. 4. If, under sec. 3 of this Act, this Act takes effect, it takes effect on the date that is 31 the later of
01 (1) the effective date of the Act described in sec. 3 of this Act; or 02 (2) July 1, 2006.