CSHB 498(RES): "An Act authorizing tax credits against the production tax on oil and gas for qualified development expenditures for challenged oil pools; and providing for an effective date."
00 CS FOR HOUSE BILL NO. 498(RES) 01 "An Act authorizing tax credits against the production tax on oil and gas for qualified 02 development expenditures for challenged oil pools; and providing for an effective date." 03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 04 * Section 1. AS 43.55 is amended by adding a new section to read: 05 Sec. 43.55.026. Credits for expenditures for development of challenged oil 06 pools. (a) Notwithstanding that an expenditure that is a qualified development 07 expenditure may be a lease expenditure that is deductible for the purpose of 08 calculating the production tax value of oil and gas under AS 43.55.160(a), a producer 09 that incurs a qualified development expenditure may also elect to take a tax credit in 10 the amount of 15 percent of that expenditure. A credit under this subsection 11 (1) is in addition to any credit under AS 43.55.024 for the same 12 expenditure; and 13 (2) may be applied against a tax due under AS 43.55.011(e) on oil 14 produced on or after April 1, 2006.
01 (b) For a calendar year for which the producer makes an election under 02 AS 43.55.160(f), instead of taking a tax credit at a rate authorized by (a) of this section 03 as to each separate qualified development expenditure after it has been incurred, a 04 producer that incurs a qualified development expenditure during that year and that 05 wishes to apply a credit based on that expenditure against a tax due under 06 AS 43.55.011(e) shall calculate and apply every month an annualized tax credit in an 07 amount equal to one and one-quarter percent of the producer's total qualified 08 development expenditures incurred during that year and for which the tax credit is 09 taken for that year. 10 (c) A credit or portion of a credit under this section may not be used to reduce 11 a person's tax liability under AS 43.55.011(e) for any month below zero, and any 12 unused credit or portion of a credit not used under this subsection may be applied in a 13 later month. 14 (d) A credit under this section is not transferable. 15 (e) A producer may not take a credit under this section for an expenditure 16 incurred 17 (1) after March 31, 2016; 18 (2) for an oil pool determined to be a challenged oil pool under (f) of 19 this section sooner than 45 days after the Department of Natural Resources provides 20 notice of the determination to the Legislative Budget and Audit Committee; 21 (3) to acquire an asset (A) the cost of previously acquiring which was a 22 lease expenditure under AS 43.55.160(c) or would have been a lease expenditure 23 under AS 43.55.160(c) if it had been incurred on or after April 1, 2006, or (B) that has 24 previously been placed in service in the state; an expenditure to acquire an asset is not 25 excluded under this paragraph if not more than an immaterial portion of the asset 26 meets a description under (A) or (B) of this paragraph; for purposes of this paragraph, 27 "asset" includes geological, geophysical, and well data and interpretations. 28 (f) A lessee under an oil and gas lease issued under AS 38.05.180 may apply 29 to the Department of Natural Resources for a determination that an oil pool within the 30 lessee's lease, other than an oil pool described in (m)(1)(A) - (D) of this section, is a 31 challenged oil pool under this subsection. The Department of Natural Resources shall
01 prescribe the application form to be used and the information to be provided by an 02 applicant. After consulting with the Alaska Oil and Gas Conservation Commission, 03 the Department of Natural Resources shall make a determination within six months 04 after receiving a complete application and shall provide notice of the determination to 05 the Department of Revenue and the Legislative Budget and Audit Committee. For 06 purposes of this subsection, a challenged oil pool is 07 (1) an oil pool 08 (A) no part of which is located at a true vertical depth of 09 greater than 5,500 feet as measured from sea level; and 10 (B) with oil that has an average API gravity of 25 or less; or 11 (2) an oil pool whose reservoir rock primarily consists of carbonates 12 and has an average permeability of three millidarcies or less. 13 (g) If the department determines under (i) of this section that the average price 14 of Alaska North Slope oil on the United States West Coast during the period April 1, 15 2006, through March 31, 2016, is $50 a barrel or more, a producer that takes a credit 16 under this section shall repay to the department, no later than June 30, 2016, the 17 amount of the credit, with interest at the rate prescribed in this subsection. Interest is at 18 a rate equal to the rate of return, as determined by the department, that is earned by the 19 budget reserve fund established under art. IX, sec. 17, Constitution of the State of 20 Alaska, from the date the credit was applied against the producer's tax liability until 21 the earlier of June 30, 2016, or the date the payment is made to the department. 22 Interest on an amount unpaid after June 30, 2016, is at the rate prescribed under 23 AS 43.05.225(1) from July 1, 2016 until the date the payment is made to the 24 department. 25 (h) A producer that otherwise is allowed to apply a credit under this section 26 against a tax due for a month ending before April 1, 2016, may defer using the credit 27 until after April 30, 2016. If the department determines under (i) of this section that 28 the average price of Alaska North Slope oil on the United States West Coast during 29 the period April 1, 2006, through March 31, 2016, is less than $50 a barrel, the 30 producer then may apply the credit against a tax due under AS 43.55.011(e) or may 31 request a refund from the department of the amount of the credit, with interest at the
01 rate prescribed in this subsection. Interest is at a rate equal to the rate of return, as 02 determined by the department, that is earned by the budget reserve fund established 03 under art. IX, sec. 17, Constitution of the State of Alaska, from the date the tax under 04 AS 43.55.011(e) was due against which the amount of a credit could have been 05 applied against the producer's tax liability in accordance with (c) of this section, until 06 (1) the date the amount of the credit is actually applied against a tax under this 07 subsection, if it is applied; or (2) the earlier of 90 days after a refund request for the 08 amount of the credit is received by the department or the refund is paid, if a refund is 09 requested. Interest on an amount unpaid 90 days after a refund request is received by 10 the department is at the rate prescribed under AS 43.05.225(1) from the 91st day after 11 the refund request is received until the date the refund is paid. 12 (i) The department shall, by regulation, specify the method by which the 13 average price of Alaska North Slope oil on the United States West Coast shall be 14 calculated, with reference to one or more published sources of price information. The 15 department shall make available to the public no later than April 30, 2016, its 16 determination of the average price of Alaska North Slope oil on the United States 17 West Coast during the period April 1, 2006, through March 31, 2016. 18 (j) For purposes of the period of limitations provided under AS 43.05.260, an 19 amount that a producer is obligated to repay to the department under (g) of this section 20 is considered a tax imposed by this title for which a return is filed on June 30, 2016. A 21 producer that incurs an expenditure before April 1, 2016, for which a credit is claimed 22 under this section shall maintain until July 1, 2019, its records sufficient to show 23 whether the expenditure is a qualified development expenditure and to show the tax 24 liability against which the credit is or, under (h) of this section, could have been 25 applied. 26 (k) Except as provided in (l) of this section, the department may adopt 27 regulations to carry out the purposes of this section, including prescribing reporting, 28 record keeping, and other procedures and requirements to verify the accuracy of the 29 credits claims and to ensure that a credit is not used more than once, and otherwise 30 implementing this section. 31 (l) The Department of Natural Resources shall adopt regulations to implement
01 (f) of this section, including regulations prescribing the method to be used to 02 determine the average API gravity of oil contained in an oil pool and the method to be 03 used to determine the average permeability of an oil pool's reservoir rock. 04 (m) In this section, 05 (1) "challenged oil pool" means an oil pool 06 (A) in the Ugnu or Schrader Bluff formation within 07 (i) the Prudhoe Bay Unit; or 08 (ii) the Milne Point Unit; 09 (B) in the West Sak or Ugnu formation within the Kuparuk 10 River Unit; 11 (C) in the Ugnu, Schrader Bluff, or West Sak formation within 12 the 13 (i) Tuvaaq Unit; 14 (ii) Nikaitchuk Unit; or 15 (iii) Rockflour Unit; 16 (D) in the Lisburne group within the Lisburne Participating 17 Area of the Prudhoe Bay Unit; or 18 (E) that is determined by the Department of Natural Resources 19 to be a challenged oil pool under (f) of this section; 20 (2) "develop" does not include the drilling, testing, or evaluation of 21 delineation wells; 22 (3) "qualified development expenditure" means, except as otherwise 23 provided in (e) of this section, an expenditure 24 (A) that is a lease expenditure under AS 43.55.160; 25 (B) the primary purpose of which is development of a 26 challenged oil pool within an oil and gas lease issued under AS 38.05.180; and 27 (C) that is treated as a capitalized expenditure under 26 U.S.C. 28 (Internal Revenue Code), as amended, regardless of elections made under 26 29 U.S.C. 263(c) (Internal Revenue Code), as amended, and is 30 (i) treated as a capitalized expenditure for federal 31 income tax reporting purposes by the person incurring the expenditure;
01 or 02 (ii) eligible to be deducted as an expense under 26 03 U.S.C. 263(c) (Internal Revenue Code), as amended. 04 * Sec. 2. The uncodified law of the State of Alaska is amended by adding a new section to 05 read: 06 TRANSITION PROVISION. Notwithstanding any contrary provision of 07 AS 43.55.026, enacted by sec. 1 of this Act, for oil and gas produced on or after April 1, 08 2006, and before January 1, 2007, the phrase "every month an annualized credit in an amount 09 equal to one and one-quarter percent" in AS 43.55.026(b), enacted by sec. 1 of this Act, shall 10 be replaced by the phrase "every month during the period April 1, 2006, through 11 December 31, 2006, an annualized tax credit in an amount equal to one and two-thirds 12 percent." 13 * Sec. 3. 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 and Department of Natural Resources may proceed to adopt 17 regulations to implement this Act. The regulations take effect under AS 44.62 (Administrative 18 Procedure Act), but not before the 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 or Department of Natural Resources to implement, interpret, 21 make specific, or otherwise carry out the provisions of this Act may apply retroactively to 22 April 1, 2006, if the agency adopting the regulation expressly designates in the regulation that 23 the regulation applies retroactively to that date. 24 * Sec. 4. The uncodified law of the State of Alaska is amended by adding a new section to 25 read: 26 RETROACTIVE EFFECT. Sections 1 and 2 of this Act are retroactive to April 1, 27 2006. 28 * Sec. 5. The uncodified law of the State of Alaska is amended by adding a new section to 29 read: 30 CONDITIONAL EFFECT OF ACT. This Act takes effect only if the Twenty-Fourth 31 Alaska Legislature passes a bill, and that bill becomes law, in which the oil production tax
01 and gas production tax in AS 43.55 are repealed and a production tax on oil and gas based on 02 a percentage of its production tax value is enacted in AS 43.55. 03 * Sec. 6. If, under sec. 5 of this Act, this Act takes effect, it takes effect on the effective date 04 of the provisions described in sec. 5 of this Act of the bill referred to in sec. 5 of this Act.