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SB 85: "An Act providing for a tax credit applicable to the oil and gas production tax based on the cost of developing new oil and gas production; and providing for an effective date."

00                             SENATE BILL NO. 85                                                                          
01 "An Act providing for a tax credit applicable to the oil and gas production tax based on                                
02 the cost of developing new oil and gas production; and providing for an effective date."                                
03 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA:                                                                
04    * Section 1. AS 43.20.043(g) is amended to read:                                                                   
05            (g)  A taxpayer that obtains a credit for a qualified capital investment or cost                             
06       incurred for qualified services under this section may not also claim a tax credit or                             
07       royalty modification for the same qualified capital investment or cost incurred for                               
08       qualified services under AS 38.05.180(i), AS 41.09.010, AS 43.55.023, [OR]                                        
09       43.55.025, or 43.55.026. However, a taxpayer may elect not to obtain a credit under                           
10       this section in order to qualify for a credit provided under AS 38.05.180(i),                                     
11       AS 41.09.010, AS 43.55.023, [OR] 43.55.025, or 43.55.026.                                                     
12    * Sec. 2. AS 43.55.023(a) is amended to read:                                                                      
13            (a)  A producer or explorer may take a tax credit for a qualified capital                                    
14       expenditure as follows:                                                                                           
01                 (1)  notwithstanding that a qualified capital expenditure may be a                                      
02       deductible lease expenditure for purposes of calculating the production tax value of oil                          
03       and gas under AS 43.55.160(a), unless a credit for that expenditure is taken under                                
04       AS 38.05.180(i), AS 41.09.010, AS 43.20.043, [OR] AS 43.55.025, or 43.55.026, a                               
05       producer or explorer that incurs a qualified capital expenditure may also elect to apply                          
06       a tax credit against a tax levied by AS 43.55.011(e) in the amount of 20 percent of that                          
07       expenditure; however, not more than half of the tax credit may be applied for a single                            
08       calendar year;                                                                                                    
09                 (2)  a producer or explorer may take a credit for a qualified capital                                   
10       expenditure incurred in connection with geological or geophysical exploration or in                               
11       connection with an exploration well only if the producer or explorer                                              
12                      (A)  agrees, in writing, to the applicable provisions of                                           
13            AS 43.55.025(f)(2);                                                                                          
14                      (B)  submits to the Department of Natural Resources all data                                       
15            that would be required to be submitted under AS 43.55.025(f)(2).                                             
16    * Sec. 3. AS 43.55 is amended by adding a new section to read:                                                     
17            Sec. 43.55.026. Development cost credit. (a) This section applies to a credit                              
18       for a qualified expenditure incurred before the date of production of oil or gas in                               
19       paying quantities for a lease or property that is taxable under AS 43.55.011(e) and that                          
20       contains land that, as of December 31, 2010, is not or previously had not been within a                           
21       unit or produced oil or gas in paying quantities.                                                                 
22            (b)  The amount of the credit under this section is equal to 100 percent of the                              
23       qualified development expenditures that are incurred after the completion of the first                            
24       well drilled that discovers a pool capable of commercial production from the lease or                             
25       property and before the commencement of production in paying quantities. The                                      
26       department, in consultation with the                                                                              
27                 (1)  Alaska Oil and Gas Conservation Commission, shall determine the                                    
28       date on which the first well drilled discovered a pool capable of production from a                               
29       lease or property for which the credit is taken; and                                                              
30                 (2)  Department of Natural Resources, shall determine the date of the                                   
31       commencement of production in paying quantities from the lease or property for                                    
01       which the credit is taken.                                                                                        
02            (c)  The credit under this section may be applied against the tax due under                                  
03       AS 43.55.011(e) during the five-year period immediately following the date of the                                 
04       commencement of production in paying quantities, or, if the credit is fully applied                               
05       before the end of the five-year period, until the date the credits for qualified                                  
06       development expenditures have been fully applied against the tax due under                                        
07       AS 43.55.011(e), whichever occurs first. A credit for a qualified expenditure expires if                          
08       not taken within five years after the date of the commencement of production in                                   
09       paying quantities and may not be applied to the tax due under AS 43.55.011(e) for the                             
10       production of oil or gas from a lease or property not eligible for the credit under this                          
11       section.                                                                                                          
12            (d)  A qualified development expenditure that is taken as a credit under this                                
13       section may not be used as an expenditure for which a credit may be taken under                                   
14       AS 43.20.043 or AS 43.55.023. A credit under AS 43.55.023 may not be taken against                                
15       the tax due under AS 43.55.011(e) during the same month in which a credit is taken                                
16       under this section.                                                                                               
17            (e)  A credit or portion of a credit under this section is not transferable and may                          
18       not be used to reduce a person's tax liability under AS 43.55.011(e) to below zero for                            
19       any calendar year.                                                                                                
20            (f)  The department shall adopt regulations describing the procedures for                                    
21       determining the amount of the credit, record keeping, verification of the accuracy of                             
22       the credit claimed, and other regulations necessary to administer this section.                                   
23            (g)  If a lease or property for which a credit may be taken under this section                               
24       subsequently becomes a part of a unit under AS 38.05.180(p), the credit may be                                    
25       applied only against the tax due under AS 43.55.011(e) for the production of oil and                              
26       gas attributable to the lease or property that qualified for the credit.                                          
27            (h)  In this section,                                                                                        
28                 (1)  "production in paying quantities" means production of oil and gas                                  
29       in quantities sufficient to recover the cost of operating and marketing, although the                             
30       quantity may be insufficient to recover the cost of drilling;                                                     
31                 (2)  "qualified development expenditure" means an expenditure, other                                    
01       than an expenditure for exploring for new oil or gas reserves, that may be recognized                             
02       as a                                                                                                              
03                      (A)  qualified capital expenditure as defined in AS 43.55.023;                                     
04            or                                                                                                           
05                      (B)  lease expenditure under AS 43.55.165 if oil or gas had been                                   
06            produced from the lease or property at the time the qualified development                                    
07            expenditure was incurred.                                                                                    
08    * Sec. 4. AS 43.55.180(a) is amended to read:                                                                      
09            (a)  The department shall study                                                                              
10                 (1)  the effects of the provisions of this chapter on oil and gas                                       
11       exploration, development, and production in the state, on investment expenditures for                             
12       oil and gas exploration, development, and production in the state, on the entry of new                            
13       producers into the oil and gas industry in the state, on state revenue, and on tax                                
14       administration and compliance, giving particular attention to the tax rates provided                              
15       under AS 43.55.011, the tax credits provided under AS 43.55.023 - 43.55.026                                   
16       [AS 43.55.023 - 43.55.025], and the deductions for and adjustments to lease                                       
17       expenditures provided under AS 43.55.160 - 43.55.170; and                                                         
18                 (2)  the effects of the tax rates under AS 43.55.011(i) on state revenue                                
19       and on oil and gas exploration, development, and production on private land, and the                              
20       fairness of those tax rates for private landowners.                                                               
21    * Sec. 5. This Act takes effect immediately under AS 01.10.070(c).