HB 128: "An Act relating to allowable lease expenditures for the purpose of determining the production tax value of oil and gas for the purposes of the oil and gas production tax; and providing for an effective date."
00 HOUSE BILL NO. 128 01 "An Act relating to allowable lease expenditures for the purpose of determining the 02 production tax value of oil and gas for the purposes of the oil and gas production tax; 03 and providing for an effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. AS 43.55.165(e) is amended to read: 06 (e) For purposes of this section, lease expenditures do not include 07 (1) depreciation, depletion, or amortization; 08 (2) oil or gas royalty payments, production payments, lease profit 09 shares, or other payments or distributions of a share of oil or gas production, profit, or 10 revenue; 11 (3) taxes based on or measured by net income; 12 (4) interest or other financing charges or costs of raising equity or debt 13 capital; 14 (5) acquisition costs for a lease or property or exploration license;
01 (6) costs arising from fraud, wilful misconduct, or gross negligence; 02 (7) fines or penalties imposed by law; 03 (8) costs of arbitration, litigation, or other dispute resolution activities 04 that involve the state or concern the rights or obligations among owners of interests in, 05 or rights to production from, one or more leases or properties or a unit; 06 (9) costs incurred in organizing a partnership, joint venture, or other 07 business entity or arrangement; 08 (10) amounts paid to indemnify the state; the exclusion provided by 09 this paragraph does not apply to the costs of obtaining insurance or a surety bond from 10 a third-party insurer or surety; 11 (11) surcharges levied under AS 43.55.201 or 43.55.300; 12 (12) for a transaction that is an internal transfer or is otherwise not an 13 arm's length transaction, expenditures incurred that are in excess of fair market value; 14 (13) an expenditure incurred to purchase an interest in any corporation, 15 partnership, limited liability company, business trust, or any other business entity, 16 whether or not the transaction is treated as an asset sale for federal income tax 17 purposes; 18 (14) a tax levied under AS 43.55.011; 19 (15) the portion of costs incurred for dismantlement, removal, 20 surrender, or abandonment of a facility, pipeline, well pad, platform, or other 21 structure, or for the restoration of a lease, field, unit, area, body of water, or right-of- 22 way in conjunction with dismantlement, removal, surrender, or abandonment, that is 23 attributable to production of oil or gas occurring before April 1, 2006; the portion is 24 calculated as a ratio of the amount of oil and gas production, in barrels of oil 25 equivalent, associated with the facility, pipeline, well pad, platform, other structure, 26 lease, field, unit, area, body of water, or right-of-way occurring before April 1, 2006, 27 to the total amount of oil and gas production, in barrels of oil equivalent, associated 28 with that facility, pipeline, well pad, platform, other structure, lease, field, unit, area, 29 body of water, or right-of-way through the end of the calendar month before 30 commencement of the dismantlement, removal, surrender, or abandonment; a cost is 31 not excluded under this paragraph if the dismantlement, removal, surrender, or
01 abandonment for which the cost is incurred is undertaken for the purpose of replacing, 02 renovating, or improving the facility, pipeline, well pad, platform, or other structure; 03 for the purposes of this paragraph, "barrel of oil equivalent" means 04 (A) in the case of oil, one barrel; 05 (B) in the case of gas, 6,000 cubic feet; 06 (16) costs incurred for containment, control, cleanup, or removal in 07 connection with any unpermitted release of oil or a hazardous substance and any 08 liability for damages imposed on the producer or explorer for that unpermitted release; 09 this paragraph does not apply to the cost of developing and maintaining an oil 10 discharge prevention and contingency plan under AS 46.04.030; 11 (17) costs incurred to satisfy a work commitment under an exploration 12 license under AS 38.05.132; 13 (18) that portion of expenditures, that would otherwise be qualified 14 capital expenditures as defined in AS 43.55.023(k), incurred during a calendar year 15 that are less than the product of $0.30 multiplied by the total taxable production from 16 each lease or property, in BTU equivalent barrels, during that calendar year, except 17 that, when a portion of a calendar year is subject to this provision, the expenditures 18 and volumes shall be prorated within that calendar year; 19 (19) costs or that portion of the costs determined by the 20 commissioner, in consultation with the commissioner of environmental 21 conservation and the chair of the Alaska Oil and Gas Conservation Commission 22 and relying on the standard practices of the industry, to be 23 (A) related to the repair and replacement of improperly 24 maintained property or equipment; 25 (B) incurred to maintain the operational capability of 26 facilities or equipment shut down because of improper maintenance of 27 property or equipment; or 28 (C) for operating facilities or equipment at diminished 29 capacity in proportion to the amount of diminished capacity that is caused 30 by the improper maintenance of property or equipment. 31 * Sec. 2. The uncodified law of the State of Alaska is amended by adding a new section to
01 read: 02 APPLICABILITY. Section 1 of this Act applies to oil and gas produced after 03 March 31, 2006. 04 * Sec. 3. The uncodified law of the State of Alaska is amended by adding a new section to 05 read: 06 TRANSITIONAL PROVISIONS. (a) A person that filed a statement under 07 AS 43.55.030 before the effective date of this Act and deducted lease expenditures that may 08 not be deducted under AS 43.55.165(e), as amended by sec. 1 of this Act, shall file an 09 amended return and pay any additional tax within 90 days after the effective date of this Act. 10 (b) A person required to make an installment payment of estimated tax under 11 AS 43.55.020(a) for a period not included in a return required to be filed before the effective 12 date of this Act shall determine the amount of the underpayment, if any, that is attributable to 13 lease expenditures that may not be deducted under AS 43.55.165(e) as amended by sec. 1 of 14 this Act. The amount of any underpayment determined under this subsection shall be paid 15 within 90 days after the effective date of this Act. 16 * Sec. 4. The uncodified law of the State of Alaska is amended by adding a new section to 17 read: 18 RETROACTIVITY. Section 1 of this Act is retroactive to April 1, 2006. 19 * Sec. 5. This Act takes effect immediately under AS 01.10.070(c).