00 CS FOR SENATE BILL NO. 305(FIN) 01 "An Act repealing the oil production tax and the gas production tax and providing for a 02 production tax on oil and gas; relating to the calculation of the gross value at the point 03 of production of oil and gas and to the determination of the value of oil and gas for 04 purposes of the production tax on oil and gas; providing for tax credits against the 05 production tax on oil and gas; relating to the relationship of the production tax on oil 06 and gas to other taxes, to the dates those tax payments and surcharges are due, to 07 interest on overpayments of the tax, and to the treatment of the tax in a producer's 08 settlement with the royalty owners; relating to flared gas, and to oil and gas used in the 09 operation of a lease or property under the production tax; relating to the prevailing 10 value of oil and gas under the production tax; relating to surcharges on oil; relating to 11 statements or other information required to be filed with or furnished to the 12 Department of Revenue, to the penalty for failure to file certain reports for the tax, to 01 the powers of the Department of Revenue, and to the disclosure of certain information 02 required to be furnished to the Department of Revenue as applicable to the 03 administration of the tax; relating to criminal penalties for violating conditions 04 governing access to and use of confidential information relating to the tax, and to the 05 deposit of tax money collected by the Department of Revenue; amending the definitions 06 of 'gas,' 'oil,' and certain other terms for purposes of the production tax, and as the 07 definition of the term 'gas' applies in the Alaska Stranded Gas Development Act, and 08 adding further definitions; making conforming amendments; and providing for an 09 effective date." 10 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 11 * Section 1. The uncodified law of the State of Alaska is amended by adding a new section 12 to read: 13 LEGISLATIVE INTENT. (a) It is the intent of the legislature through sec. 11 of this 14 Act to confirm by clarification the long-standing interpretation of AS 43.55.020(f) by the 15 Department of Revenue. 16 (b) It is the intent of the legislature that the division or other unit of the Department of 17 Environmental Conservation assigned responsibility for administration of the programs under 18 AS 46.08 that are principally supported by the conservation surcharges on oil levied under 19 AS 43.55.201 - 43.55.299 and 43.55 300 - 43.55.310 20 (1) reduce program costs, including personnel costs, as necessary to operate 21 within the revenue anticipated to be generated by those surcharges, in the amounts of those 22 surcharges as amended by secs. 27 and 29 of this Act; and 23 (2) request appropriations for exceptional program needs and expansions 24 beyond what can be provided from the estimated amounts collected from those surcharges 25 from alternative funding sources. 26 * Sec. 2. AS 43.05.230(f) is amended to read: 27 (f) A wilful violation of the provisions of this section or of a condition 28 imposed under AS 43.55.040(1)(B) is punishable by a fine of not more than $5,000, 01 or by imprisonment for not more than two years, or by both. 02 * Sec. 3. AS 43.20.031(c) is amended to read: 03 (c) In computing the tax under this chapter, the taxpayer is not entitled to 04 deduct any taxes based on or measured by net income. The taxpayer may deduct the 05 tax levied and paid under AS 43.55. 06 * Sec. 4. AS 43.20.072(b) is amended to read: 07 (b) A taxpayer's business income to be apportioned under this section to the 08 state shall be the federal taxable income of the taxpayer's consolidated business for the 09 tax period, except that 10 (1) taxes based on or measured by net income that are deducted in the 11 determination of the federal taxable income shall be added back; the tax levied and 12 paid under AS 43.55 may not be added back; 13 (2) intangible drilling and development costs that are deducted as 14 expenses under 26 U.S.C. 263(c) (Internal Revenue Code) in the determination of the 15 federal taxable income shall be capitalized and depreciated as if the option to treat 16 them as expenses under 26 U.S.C. 263(c) (Internal Revenue Code) had not been 17 exercised; 18 (3) depletion deducted on the percentage depletion basis under 26 19 U.S.C. 613 (Internal Revenue Code) in the determination of the federal taxable income 20 shall be recomputed and deducted on the cost depletion basis under 26 U.S.C. 612 21 (Internal Revenue Code); and 22 (4) depreciation shall be computed on the basis of 26 U.S.C. 167 23 (Internal Revenue Code) as that section read on June 30, 1981. 24 * Sec. 5. AS 43.55.011 is amended by adding new subsections to read: 25 (e) There is levied on the producer of oil or gas a tax for all oil and gas 26 produced each month from each lease or property in the state, less any oil and gas the 27 ownership or right to which is exempt from taxation or constitutes a lessor's royalty 28 interest under an oil and gas lease. The tax is equal to 29 (1) for oil that is produced in the Cook Inlet sedimentary basin, as that 30 term is defined by regulations adopted to implement AS 38.05.180(f)(4), five percent 31 of the production tax value of the taxable oil as calculated under AS 43.55.160; and 01 (2) except as to oil described in (1) of this subsection, 22.5 percent of 02 the production tax value of the taxable oil and gas as calculated under AS 43.55.160. 03 (f) There is levied on the producer of oil or gas a tax for all oil and gas 04 produced each month from each lease or property in the state the ownership or right to 05 which constitutes a lessor's royalty interest under an oil and gas lease, except for oil 06 and gas the ownership or right to which is exempt from taxation. The provisions of 07 this subsection apply to a lessor's royalty interest under an oil and gas lease as follows: 08 (1) the rate of tax levied on oil produced from a lease is equal to five 09 percent of the gross value at the point of production of the oil; 10 (2) the rate of tax levied on gas produced from a lease is equal to 1.667 11 percent of the gross value at the point of production of the gas; 12 (3) if the department determines that, for purposes of reducing the 13 producer's tax liability under (1) or (2) of this subsection, the producer has received or 14 will receive consideration from the lessor offsetting all or a part of the producer's 15 royalty obligation, other than a deduction under AS 43.55.020(d) of the amount of a 16 tax paid, 17 (A) notwithstanding (1) of this subsection, the tax is equal to 18 (i) for oil that is produced in the Cook Inlet sedimentary 19 basin, as that term is defined by regulations adopted to implement 20 AS 38.05.180(f)(4), five percent of the gross value at the production of 21 the oil; and 22 (ii) for oil, except oil described in (i) of this 23 subparagraph, and gas 22.5 percent of the gross value at the point of 24 production of the oil; and 25 (B) notwithstanding (2) of this subsection, the tax is equal to 26 7.5 percent of the gross value at the point of production of the gas. 27 (g) In addition to the taxes levied under (e) and (f) of this section, if the 28 average ANS West Coast price per barrel of oil during a month exceeds $50, there is 29 levied on the producer of oil a tax for oil produced during that month from each lease 30 or property in the state, less any oil the ownership or right to which is exempt from 31 taxation. The tax levied under this subsection is equal to 01 [((ANS West Coast price - $50) x .002) x [ANS wellhead price x (1 - PPT rate)]] 02 x (total taxable barrels of oil at the point of production) 03 where 04 (1) "ANS wellhead price" means the prevailing value for oil produced 05 in the Alaska North Slope area; and 06 (2) the PPT, or production profit tax, rate is the tax rate described in (e) 07 of this section. 08 (h) For purposes of (g) of this section, the department may calculate the 09 average price or may, by regulation, specify the method by which the average price 10 shall be calculated with reference to one or more published sources of price 11 information. If, in the department's judgment, reliable published sources of price 12 information on Alaska North Slope crude oil cease, or appear likely to soon cease, to 13 be available, or if, in the department's judgment, the price of Alaska North Slope crude 14 oil ceases, or appears likely to soon cease, to be a reliable indicator of the general 15 price level of crude oils, the department shall, by regulation, specify a substitute 16 formula for computing the oil price index. The substitute formula specified by the 17 department under this subsection must bear, as nearly as is reasonably possible, the 18 same relationship to the general price level of crude oils as did the price of Alaska 19 North Slope crude oil. 20 * Sec. 6. AS 43.55.017(a) is amended to read: 21 (a) Except as provided in this chapter, the taxes imposed by this chapter are in 22 place of all taxes now imposed by the state or any of its municipalities, and neither the 23 state nor a municipality may impose a tax on [UPON] 24 (1) producing oil or gas leases; 25 (2) oil or gas produced or extracted in the state; 26 (3) the value of intangible drilling and development costs, as 27 described in 26 U.S.C. 263(c) (Internal Revenue Code), as amended through 28 January 1, 1974 [EXPLORATION EXPENSES]. 29 * Sec. 7. AS 43.55.020(a) is repealed and reenacted to read: 30 (a) Ninety-five percent of the total tax levied under AS 43.55.011(e) - (g), net 31 of any credits applied under this chapter, is due on the last day of each calendar month 01 on oil and gas produced from each lease or property during the preceding month. The 02 remaining portion of the tax levied under AS 43.55.011(e) - (g), net of any credits 03 applied under this chapter, is due on March 31 of the year following the calendar year 04 during which the oil and gas were produced. An unpaid amount of tax that is not paid 05 when due in accordance with this subsection becomes delinquent. An overpayment of 06 tax with respect to a month may be applied against the tax due for any later month. 07 Notwithstanding any contrary provision of AS 43.05.280, interest on an overpayment 08 is allowed only from a date that is 90 days after the later of (1) the March 31 described 09 in this subsection, or (2) the date that the statement required under AS 43.55.030(a) 10 and (e) to be filed on or before that March 31 is filed. Interest is not allowed if the 11 overpayment was refunded within the 90-day period. 12 * Sec. 8. AS 43.55.020(b) is amended to read: 13 (b) The production tax on oil and [OR] gas shall be paid by or on behalf of the 14 producer. 15 * Sec. 9. AS 43.55.020(d) is amended to read: 16 (d) In making settlement with the royalty owner for oil and gas that is 17 taxable under AS 43.55.011, the producer may deduct the amount of the tax paid on 18 taxable royalty oil and [OR] gas, or may deduct taxable royalty oil or gas equivalent 19 in value at the time the tax becomes due to the amount of the tax paid. Unless 20 otherwise agreed between the producer and the royalty owner, the amount of the 21 tax paid under AS 43.55.011(e) and (g) on taxable royalty oil and gas for a month, 22 other than oil and gas the ownership or right to which constitutes a lessor's 23 royalty interest under an oil and gas lease, is considered to be the gross value at 24 the point of production of the taxable royalty oil and gas produced during the 25 month multiplied by a figure that is a quotient, in which 26 (1) the numerator is the producer's total tax liability under 27 AS 43.55.011(e) and (g) for the month of production; and 28 (2) the denominator is the total gross value at the point of 29 production of the oil and gas taxable under AS 43.55.011(e) and (g) produced by 30 the producer from all leases and properties in the state during the month. 31 * Sec. 10. AS 43.55.020(e) is repealed and reenacted to read: 01 (e) Gas flared, released, or allowed to escape in excess of the amount 02 authorized by the Alaska Oil and Gas Conservation Commission is considered, for the 03 purpose of AS 43.55.011 - 43.55.180, as gas produced from a lease or property. Oil or 04 gas used in the operation of a lease or property in the state in drilling for or producing 05 oil or gas, or for repressuring, except to the extent determined by the Alaska Oil and 06 Gas Conservation Commission to be waste, is not considered, for the purpose of 07 AS 43.55.011 - 43.55.180, as oil or gas produced from a lease or property. 08 * Sec. 11. AS 43.55.020(f) is amended to read: 09 (f) If oil or gas is produced but not sold, or if oil or gas is produced and 10 sold under circumstances where the sale price does not represent the prevailing value 11 for oil or gas of like kind, character, or quality in the field or area from which the 12 product is produced, the department may require the tax to be paid upon the basis of 13 the value of oil or gas of the same kind, quality, and character prevailing for that field 14 or area during the calendar month of production or sale [FOR THAT FIELD OR 15 AREA]. 16 * Sec. 12. AS 43.55 is amended by adding a new section to read: 17 Sec. 43.55.024. Tax credits for certain losses and expenditures. (a) A 18 producer or explorer may take a tax credit for a qualified capital expenditure as 19 follows: 20 (1) notwithstanding that a qualified capital expenditure may be a 21 deductible lease expenditure for purposes of calculating the production tax value of oil 22 and gas under AS 43.55.160(a), unless a credit for that expenditure is taken under 23 AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or AS 43.55.025, 24 (A) a producer or explorer that incurs a qualified capital 25 expenditure may also elect to take a tax credit against a tax due under 26 AS 43.55.011(e) in the amount of 25 percent of that expenditure; 27 (B) for a calendar year for which the producer makes an 28 election under AS 43.55.160(f), instead of taking a tax credit at a rate 29 authorized by (A) of this paragraph as to each separate qualified capital 30 expenditure after it has been incurred, a producer that incurs a qualified capital 31 expenditure during that year and that wishes to apply a credit based on that 01 expenditure against a tax due under AS 43.55.011(e) shall calculate and apply 02 every month an annualized tax credit in an amount equal to 2 1/12 percent of 03 the total qualified capital expenditures incurred during that year and for which 04 the tax credit is taken for that year; 05 (2) a producer or explorer may take a credit for a qualified capital 06 expenditure incurred in connection with geological or geophysical exploration or in 07 connection with an exploration well only if the producer or explorer provides to the 08 department, as part of the statement required under AS 43.55.030(a) for the month for 09 which the credit is sought to be taken, the producer's or explorer's written agreement 10 (A) to notify the Department of Natural Resources, within 30 11 days after completion of the geological or geophysical data processing or 12 completion of the well, or within 30 days after the statement is filed, whichever 13 is the latest, of the date of completion and to submit a report to that department 14 describing the processing sequence and provide a list of data sets available; 15 (B) to provide to the Department of Natural Resources, within 16 30 days after the date of a request, specific data sets, ancillary data, and reports 17 identified in (A) of this paragraph; 18 (C) that, notwithstanding any provision of AS 38, the 19 Department of Natural Resources shall hold confidential the information 20 provided to that department under this paragraph for 10 years following the 21 completion date, after which the department shall publicly release the 22 information after 30 days' public notice. 23 (b) A producer or explorer may elect to take a tax credit in the amount of 22.5 24 percent of a carried-forward annual loss. A credit under this subsection may be applied 25 against a tax due under AS 43.55.011(e) and may be applied irrespective of whether 26 the producer or explorer also claims a credit for transitional investment expenditures 27 authorized by (i) of this section. For purposes of this subsection, a carried-forward 28 annual loss is the amount of a producer's or explorer's adjusted lease expenditures 29 under AS 43.55.160 for a previous calendar year that was not deductible in any month 30 under AS 43.55.160(a) and (b). 31 (c) A credit or portion of a credit under this section may not be used to reduce 01 a person's tax liability under AS 43.55.011(e) for any month below zero, and any 02 unused credit or portion of a credit not used under this subsection may be applied in a 03 later month. 04 (d) Except as limited by (i) of this section, a person entitled to take a tax credit 05 under this section that wishes to transfer the unused credit to another person may 06 apply to the department for a transferable tax credit certificate. An application under 07 this subsection must be on a form prescribed by the department and must include 08 supporting information and documentation that the department reasonably requires. 09 The department shall grant or deny an application, or grant an application as to a lesser 10 amount than that claimed and deny it as to the excess, not later than 60 days after the 11 latest of (1) March 31 of the year following the calendar year in which the qualified 12 capital expenditure or carried-forward annual loss for which the credit is claimed was 13 incurred; (2) if the applicant is required under AS 43.55.030(a) and (e) to file a 14 statement on or before March 31 of the year following the calendar year in which the 15 qualified capital expenditures or carried-forward annual loss for which the credit is 16 claimed was incurred, the date the statement was filed; or (3) the date the application 17 was received by the department. If, based on the information then available to it, the 18 department is reasonably satisfied that the applicant is entitled to a credit, the 19 department shall issue the applicant a transferable tax credit certificate for the amount 20 of the credit. A certificate issued under this subsection does not expire. 21 (e) A person to which a transferable tax credit certificate is issued under (d) of 22 this section may transfer the certificate to another person, and a transferee may further 23 transfer the certificate. Subject to the limitations set out in (a) - (c) of this section, and 24 notwithstanding any action the department may take with respect to the applicant 25 under (f) of this section, the owner of a certificate may apply the credit or a portion of 26 the credit shown on the certificate only against a tax due under AS 43.55.011(e). 27 However, a credit shown on a transferable tax credit certificate may not be applied to 28 reduce a transferee's total tax due under AS 43.55.011(e) on oil and gas produced 29 during a calendar year to less than 80 percent of the tax that would otherwise be due 30 without applying that credit. Any portion of a credit not used under this subsection 31 may be applied in a later period. 01 (f) The issuance of a transferable tax credit certificate under (d) of this section 02 does not limit the department's ability to later investigate or audit a tax credit claim to 03 which the certificate relates or to adjust or deny the claim if the department determines 04 that the applicant was not entitled to the amount of the credit for which the certificate 05 was issued. The tax liability of the applicant under AS 43.55.011(e) and 43.55.017 - 06 43.55.180 is increased by the amount of the credit that exceeds that to which the 07 applicant was entitled. That amount bears interest under AS 43.05.225 from the date 08 the transferable tax credit certificate was issued. For purposes of this subsection, an 09 applicant that is an explorer is considered a producer subject to the tax levied under 10 AS 43.55.011(e). 11 (g) The department may adopt regulations to carry out the purposes of this 12 section, including prescribing reporting, record keeping, and certification procedures 13 and requirements to verify the accuracy of credits claimed and to ensure that a credit is 14 not used more than once, and otherwise implementing this section. 15 (h) A person may not elect to take a tax credit under (a) or (i) of this section 16 for an expenditure incurred to acquire an asset (1) the cost of previously acquiring 17 which was a lease expenditure under AS 43.55.160(c) or would have been a lease 18 expenditure under AS 43.55.160(c) if it had been incurred on or after April 1, 2006; or 19 (2) that has previously been placed in service in the state. An expenditure to acquire an 20 asset is not excluded under this subsection if not more than an immaterial portion of 21 the asset meets a description under (1) or (2) of this subsection. For purposes of this 22 subsection, "asset" includes geological, geophysical, and well data and interpretations. 23 (i) For the purposes of this section, 24 (1) a producer's or explorer's transitional investment expenditures are 25 the sum of the expenditures the producer or explorer incurred on or after April 1, 26 2001, and before April 1, 2006, that would be qualified capital expenditures if they 27 were incurred on or after April 1, 2006, less the sum of the payments or credits the 28 producer or explorer received before April 1, 2006, for the sale or other transfer of 29 assets, including geological, geophysical, or well data or interpretations, acquired by 30 the producer or explorer as a result of expenditures the producer or explorer incurred 31 before April 1, 2006, that would be qualified capital expenditures, if they were 01 incurred on or after April 1, 2006; 02 (2) a producer or explorer may elect to take a tax credit against a tax 03 due under AS 43.55.011(e) in the amount of 20 percent of the producer's or explorer's 04 transitional investment expenditures, but only to the extent that the amount does not 05 exceed 06 (A) one-half of the producer's or explorer's qualified capital 07 expenditures that are incurred during the month for which the credit is taken, if 08 the producer or explorer does not make an election under AS 43.55.160(f); 09 (B) 1/24 of the producer's or explorer's qualified capital 10 expenditures that are incurred during the calendar year that includes the month 11 for which the credit is taken, if the producer or explorer makes an election 12 under AS 43.55.160(f); 13 (3) a producer or explorer may not take a tax credit for a transitional 14 investment expenditure 15 (A) in any month that ends after March 31, 2013; 16 (B) more than once; or 17 (C) if a credit for that expenditure was taken under 18 AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or AS 43.55.025; 19 (4) notwithstanding (d) - (f) of this section, a producer or explorer may 20 not transfer a tax credit or obtain a transferable tax credit certificate for a transitional 21 investment expenditure. 22 (j) In this section, "qualified capital expenditure" means, except as otherwise 23 provided in (h) of this section, an expenditure that is a lease expenditure under 24 AS 43.55.160 and is 25 (1) incurred for geological or geophysical exploration; or 26 (2) treated as a capitalized expenditure under 26 U.S.C. (Internal 27 Revenue Code), as amended, regardless of elections made under 26 U.S.C. 263(c) 28 (Internal Revenue Code), as amended, and is 29 (A) treated as a capitalized expenditure for federal income tax 30 reporting purposes by the person incurring the expenditure; or 31 (B) eligible to be deducted as an expense under 26 U.S.C. 01 263(c) (Internal Revenue Code), as amended. 02 * Sec. 13. AS 43.55.025(a) is amended to read: 03 (a) Subject to the terms and conditions of this section, [ON OIL AND GAS 04 PRODUCED ON OR AFTER JULY 1, 2004, FROM AN OIL AND GAS LEASE, 05 OR ON GAS PRODUCED FROM A GAS ONLY LEASE,] a credit against the 06 production tax due under AS 43.55.011(e) [THIS CHAPTER] is allowed for 07 exploration expenditures that qualify under (b) of this section in an amount equal to 08 one of the following: 09 (1) 20 percent of the total exploration expenditures that qualify only 10 under (b) and (c) of this section; 11 (2) 20 percent of the total exploration expenditures for work performed 12 before July 1, 2007, and that qualify only under (b) and (d) of this section; 13 (3) 40 percent of the total exploration expenditures that qualify under 14 (b), (c), and (d) of this section; or 15 (4) 40 percent of the total exploration expenditures that qualify only 16 under (b) and (e) of this section. 17 * Sec. 14. AS 43.55.025(b) is amended to read: 18 (b) To qualify for the production tax credit under (a) of this section, an 19 exploration expenditure must be incurred for work performed on or after July 1, 2003, 20 and before July 1, 2016 [2007], except that an exploration expenditure for a Cook Inlet 21 prospect must be incurred for work performed on or after July 1, 2005, [AND 22 BEFORE JULY 1, 2010, AND EXCEPT THAT AN EXPLORATION 23 EXPENDITURE, IN WHOLE OR IN PART, SOUTH OF 68 DEGREES, 15 24 MINUTES, NORTH LATITUDE, AND NOT PART OF A COOK INLET 25 PROSPECT MUST BE INCURRED FOR WORK PERFORMED ON OR AFTER 26 JULY 1, 2003, AND BEFORE JULY 1, 2010,] and 27 (1) may be for seismic or geophysical exploration costs not connected 28 with a specific well; 29 (2) if for an exploration well, 30 (A) must be incurred by an explorer that holds an interest in the 31 exploration well for which the production tax credit is claimed; 01 (B) may be for either an oil or gas discovery well or a dry hole; 02 and 03 (C) must be for goods, services, or rentals of personal property 04 reasonably required for the surface preparation, drilling, casing, cementing, 05 and logging of an exploration well, and, in the case of a dry hole, for the 06 expenses required for abandonment if the well is abandoned within 18 months 07 after the date the well was spudded; 08 (3) may not be for testing, stimulation, or completion costs; 09 administration, supervision, engineering, or lease operating costs; geological or 10 management costs; community relations or environmental costs; bonuses, taxes, or 11 other payments to governments related to the well; or other costs that are generally 12 recognized as indirect costs or financing costs; and 13 (4) may not be incurred for an exploration well or seismic exploration 14 that is included in a plan of exploration or a plan of development for any unit on 15 May 13, 2003. 16 * Sec. 15. AS 43.55.025(f) is amended to read: 17 (f) For a production tax credit under this section, 18 (1) an explorer shall, in a form prescribed by the department and 19 within six months of the completion of the exploration activity, claim the credit and 20 submit information sufficient to demonstrate to the department's satisfaction that the 21 claimed exploration expenditures qualify under this section; 22 (2) an explorer shall agree, in writing, 23 (A) to notify the Department of Natural Resources, within 30 24 days after completion of seismic or geophysical data processing, completion of 25 a well, or filing of a claim for credit, whichever is the latest, for which 26 exploration costs are claimed, of the date of completion and submit a report to 27 that department describing the processing sequence and providing a list of data 28 sets available; if, under (c)(2)(B) of this section, an explorer submits a claim 29 for a credit for expenditures for an exploration well that is located within three 30 miles of a well already drilled for oil and gas, in addition to the submissions 31 required under (1) of this subsection, the explorer shall submit the information 01 necessary for the commissioner of natural resources to evaluate the validity of 02 the explorer's claim that the well is directed at a distinctly separate exploration 03 target, and the commissioner of natural resources shall, upon receipt of all 04 evidence sufficient for the commissioner to evaluate the explorer's claim, make 05 that determination within 60 days; 06 (B) to provide to the Department of Natural Resources, within 07 30 days after the date of a request, specific data sets, ancillary data, and reports 08 identified in (A) of this paragraph; 09 (C) that, notwithstanding any provision of AS 38, information 10 provided under this paragraph will be held confidential by the Department of 11 Natural Resources for 10 years following the completion date, at which time 12 that department will release the information after 30 days' public notice; 13 (3) if more than one explorer holds an interest in a well or seismic 14 exploration, each explorer may claim an amount of credit that is proportional to the 15 explorer's cost incurred; 16 (4) the department may exercise the full extent of its powers as though 17 the explorer were a taxpayer under this title, in order to verify that the claimed 18 expenditures are qualified exploration expenditures under this section; and 19 (5) if the department is satisfied that the explorer's claimed 20 expenditures are qualified under this section, the department shall issue to the explorer 21 a production tax credit certificate for the amount of credit to be allowed against 22 production taxes due under AS 43.55.011(e) [THIS CHAPTER]; however, 23 notwithstanding any other provision of this section, after the end of the calendar 24 year following the calendar year in which the total of production tax credit 25 certificates issued by the department under this section based on exploration 26 expenditures for Cook Inlet prospects reaches $20,000,000, the department may 27 not issue to an explorer a production tax credit certificate [IF THE TOTAL OF 28 PRODUCTION TAX CREDITS SUBMITTED FOR COOK INLET 29 PRODUCTION,] based on an exploration expenditure for a Cook Inlet prospect 30 [EXPENDITURES FOR WORK PERFORMED DURING THE PERIOD 31 DESCRIBED IN (b) OF THIS SECTION FOR THAT PRODUCTION, THAT HAVE 01 BEEN APPROVED BY THE DEPARTMENT EXCEEDS $20,000,000]. 02 * Sec. 16. AS 43.55.025(h) is amended to read: 03 (h) A producer that purchases a production tax credit certificate may apply the 04 credits against its production tax liability under AS 43.55.011(e) [THIS CHAPTER]. 05 Regardless of the price the producer paid for the certificate, the producer may receive 06 a credit against its production tax liability for the full amount of the credit, but for not 07 more than the amount for which the certificate is issued. A production tax credit 08 allowed under this section may not be applied more than once. 09 * Sec. 17. AS 43.55.025(i) is amended to read: 10 (i) For a production tax credit under this section, 11 (1) the amount of the credit that may be applied against the production 12 tax for each tax month may not exceed the total production tax liability under 13 AS 43.55.011(e) of the taxpayer applying the credit for the same month; and 14 (2) an amount of the production tax credit that is greater than the total 15 tax liability under AS 43.55.011(e) of the taxpayer applying the credit for a tax month 16 may be carried forward and applied against the taxpayer's production tax liability 17 under AS 43.55.011(e) in one or more immediately following months. 18 * Sec. 18. AS 43.55.030(a) is amended to read: 19 (a) The tax shall be paid to the department, and the person paying the tax shall 20 file with the department at the time the tax or a portion of the tax is required to be 21 paid a statement, under oath, on forms prescribed by or acceptable to the department, 22 giving, with other information required, the following: 23 (1) a description of each [THE] lease or property from which the oil 24 and [OR] gas were [WAS] produced, by name, legal description, lease number, or 25 [BY] accounting codes [CODE NUMBERS] assigned by the department; 26 (2) the names of the producer and the person paying the tax; 27 (3) the gross amount of oil and the gross amount of [OR] gas 28 produced from each [THE] lease or property, and the percentage of the gross amount 29 of oil and gas owned by each producer for whom the tax is paid; 30 (4) the gross [TOTAL] value at the point of production of the oil 31 and of the [OR] gas produced from each [THE] lease or property owned by each 01 producer for whom the tax is paid; [AND] 02 (5) the name of the first purchaser and the price received for the oil 03 and for the [OR] gas, unless relieved from this requirement in whole or in part by 04 the department; and 05 (6) the producer's lease expenditures and adjustments as 06 calculated under AS 43.55.160 [IF SOLD IN THE STATE]. 07 * Sec. 19. AS 43.55.030(d) is amended to read: 08 (d) Reports by or on behalf of the producer are delinquent the first day 09 following the day the tax is due. [EACH PRODUCER IS SUBJECT TO A PENALTY 10 OF $25 A DAY FOR EACH LEASE OR PROPERTY UPON WHICH THE 11 REPORT IS NOT FILED. THE PENALTY FOR FAILURE TO FILE A REPORT IS 12 IN ADDITION TO THE PENALTY FOR DELINQUENT TAXES, AND IS A LIEN 13 AGAINST THE ASSETS OF THE PRODUCER.] 14 * Sec. 20. AS 43.55.030 is amended by adding a new subsection to read: 15 (e) In addition to other required information, the statement required to be filed 16 on or before March 31 of a year must show any adjustments or corrections to the 17 statements that were required under (a) of this section to be filed for the months of the 18 preceding calendar year during which the oil or gas was produced. 19 * Sec. 21. AS 43.55.040 is amended to read: 20 Sec. 43.55.040. Powers of Department of Revenue. Except as provided in 21 AS 43.05.405 - 43.05.499, the department may 22 (1) require a person engaged in production and the agent or employee 23 of the person, and the purchaser of oil or gas, or the owner of a royalty interest in oil 24 or gas to furnish, whether by the filing of regular statements or reports or 25 otherwise, additional information that is considered by the department as necessary to 26 compute the amount of the tax; notwithstanding any contrary provision of law, the 27 disclosure of additional information under this paragraph to the producer 28 obligated to pay the tax does not violate AS 40.25.100(a) or AS 43.05.230(a); 29 before disclosing information under this paragraph that is otherwise required to 30 be held confidential under AS 40.25.100(a) or AS 43.05.230(a), the department 31 shall 01 (A) provide the person that furnished the information a 02 reasonable opportunity to be heard regarding the proposed disclosure and 03 the conditions to be imposed under (B) of this paragraph; and 04 (B) impose appropriate conditions limiting 05 (i) access to the information to those legal counsel, 06 consultants, employees, officers, and agents of the producer who 07 have a need to know that information for the purpose of 08 determining or contesting the producer's tax obligation; and 09 (ii) the use of the information to use for that 10 purpose; 11 (2) examine the books, records, and files of such a person; 12 (3) conduct hearings and compel the attendance of witnesses and the 13 production of books, records, and papers of any person; and 14 (4) make an investigation or hold an inquiry that is considered 15 necessary to a disclosure of the facts as to 16 (A) the amount of production from any oil or gas location, or of 17 a company or other producer of oil or gas; and 18 (B) the rendition of the oil and gas for taxing purposes. 19 * Sec. 22. AS 43.55.080 is amended to read: 20 Sec. 43.55.080. Collection and deposit of revenue. Except as otherwise 21 provided under art. IX, sec. 17, Constitution of the State of Alaska, the [THE] 22 department shall deposit in the general fund the money collected by it under 23 AS 43.55.011 - 43.55.180 [AS 43.55.011 - 43.55.150]. 24 * Sec. 23. AS 43.55.135 is amended to read: 25 Sec. 43.55.135. Measurement. For the purposes of AS 43.55.011 - 43.55.180 26 [AS 43.55.011 - 43.55.150], oil is [SHALL BE] measured in terms of a "barrel of oil" 27 and gas is [SHALL BE] measured in terms of a "cubic foot of gas." 28 * Sec. 24. AS 43.55.150(a) is amended to read: 29 (a) For the purposes of AS 43.55.011 - 43.55.180 [AS 43.55.011 - 43.55.150], 30 the gross value at the point of production is [SHALL BE] calculated using the 31 reasonable costs of transportation of the oil or gas. The reasonable costs of 01 transportation are [SHALL BE] the actual costs, except when the 02 (1) [WHEN THE] parties to the transportation of oil or gas are 03 affiliated; 04 (2) [WHEN THE] contract for the transportation of oil or gas is not an 05 arm's length transaction or is not representative of the market value of that 06 transportation; and 07 (3) [WHEN THE] method of transportation of oil or gas is not 08 reasonable in view of existing alternative methods of transportation. 09 * Sec. 25. AS 43.55.150 is amended by adding a new subsection to read: 10 (d) Under regulations adopted by the department, if the department determines 11 that an election under this subsection would improve the efficiency and economy of 12 tax administration and would result in calculations that represent value and actual 13 costs of transportation with reasonable accuracy and are not biased toward 14 understating a producer's tax liability, the department may allow a producer, subject to 15 limitations prescribed by the department as to the frequency of making elections, to 16 elect prospectively to calculate the gross value at the point of production of oil or gas 17 based in whole or part on 18 (1) a formula prescribed by the department that uses, with adjustments 19 if appropriate, a royalty value or valuation methodology accepted by the 20 (A) Department of Natural Resources under AS 38.05, in the 21 case of oil or gas produced from a lease issued by the Department of Natural 22 Resources or produced from a lease or property that is part of a unit approved 23 by the Department of Natural Resources; or 24 (B) United States Department of the Interior under applicable 25 federal oil and gas leasing statutes, in the case of oil or gas produced from a 26 lease issued by the United States Department of the Interior that is not part of a 27 unit approved by the Department of Natural Resources, or produced from a 28 lease or property that is part of a unit approved by the United States 29 Department of the Interior but not approved by the Department of Natural 30 Resources; or 31 (2) another formula prescribed by the Department of Revenue that 01 reasonably estimates a value for the oil or gas at a specific geographical location, such 02 as the point of tender or delivery into a common carrier pipeline; the formula may use 03 factors such as published price indices for oil or gas in or outside the state, quality 04 differentials for oil or gas, transportation costs between markets, and inflation 05 adjustments. 06 * Sec. 26. AS 43.55 is amended by adding new sections to article 1 to read: 07 Sec. 43.55.160. Determination of production tax value of oil and gas. (a) 08 Except as provided in (f) of this section, for purposes of AS 43.55.011(e) and (g), the 09 production tax value of the taxable oil and gas produced during a month is the total of 10 the gross value at the point of production of the oil and one-third of the gross value at 11 the point of production of the gas that are taxable under AS 43.55.011(e) and (g) and 12 produced by the producer from all leases or properties in the state, less the producer's 13 lease expenditures for the month as adjusted under (e) of this section. However, the 14 production tax value calculated under this subsection may not be less than zero. If a 15 producer does not produce taxable oil or gas during a month, the producer is 16 considered to have generated a positive production tax value if the calculation 17 described in this subsection yields a positive number because the producer's adjusted 18 lease expenditures for a month are less than zero as a result of the producer's receiving 19 a payment or credit under (e) of this section or otherwise. 20 (b) For purposes of administration of (a) of this section, 21 (1) any adjusted lease expenditures that would otherwise be deductible 22 in a month but whose deduction would cause the production tax value calculated under 23 (a) of this section of the taxable oil and gas produced during the month to be less than 24 zero may be added to the producer's adjusted lease expenditures for one or more other 25 months in the same calendar year; the total of any adjusted lease expenditures that are 26 not deductible in any month during a calendar year because their deduction would 27 cause the production tax value calculated under (a) of this section of the taxable oil 28 and gas produced during one or more months to be less than zero may be used to 29 establish a carried-forward annual loss under AS 43.55.024(b); 30 (2) an explorer that has taken a tax credit under AS 43.55.024(b) or 31 that has obtained a transferable tax credit certificate under AS 43.55.024(d) for the 01 amount of a tax credit under AS 43.55.024(b) is considered a producer, subject to the 02 tax levied under AS 43.55.011(e), to the extent that the explorer generates a positive 03 production tax value as the result of the explorer's receiving a payment or credit 04 described in (e) of this section. 05 (c) For purposes of this section, 06 (1) a producer's lease expenditures for a period are the total costs 07 upstream of the point of production of oil and gas that are incurred on or after April 1, 08 2006, by the producer during the period and that are direct, ordinary, and necessary 09 costs of exploring for, developing, or producing oil or gas deposits located within the 10 producer's leases or properties in the state or, in the case of land in which the producer 11 does not own a working interest, direct, ordinary, and necessary costs of exploring for 12 oil or gas deposits located within other land in the state; however, lease expenditures 13 do not include the costs incurred to satisfy a work commitment under an exploration 14 license under AS 38.05.132; in determining whether costs are direct, ordinary, and 15 necessary costs of exploring for, developing, or producing oil or gas deposits located 16 within a lease or property or other land in the state, 17 (A) the department shall give substantial weight to the typical 18 industry practices and standards in the state and in the United States as to costs 19 that an operator is allowed to bill a working interest owner that is not the 20 operator, under unit operating agreements or similar operating agreements that 21 were in effect on or before December 1, 2005, and were subject to negotiation 22 with working interest owners, not the operator, with substantial bargaining 23 power; and 24 (B) as to matters that are not addressed by the industry 25 practices and standards described in (A) of this paragraph or as to which those 26 practices and standards are not clear or are not uniform, the department shall 27 give substantial weight to the standards adopted by the Department of Natural 28 Resources as to the costs, other than interest, that a lessee is allowed to deduct 29 from revenue in calculating net profits under a lease issued under 30 AS 38.05.180(f)(3)(B), (D), or (E); 31 (2) the Department of Revenue may authorize a producer, including a 01 producer that is an operator, to treat as its lease expenditures under this section the 02 costs paid by the producer that are billed to the producer by an operator in accordance 03 with the terms of a unit operating agreement or similar operating agreement if the 04 Department of Revenue finds that 05 (A) the pertinent provisions of the operating agreement are 06 substantially consistent with the Department of Revenue's determinations and 07 standards otherwise applicable under this subsection; and 08 (B) at least one working interest owner party to the agreement, 09 other than the operator, has substantial incentive and ability to effectively audit 10 billings under the agreement. 11 (d) For purposes of (c) of this section, "direct costs" 12 (1) includes 13 (A) an expenditure, when incurred, to acquire an item if the 14 acquisition cost is otherwise a direct cost, notwithstanding that the expenditure 15 may be required to be capitalized rather than treated as an expense for financial 16 accounting or federal income tax purposes; 17 (B) payments of property taxes, sales and use taxes, motor fuel 18 taxes, and excise taxes; 19 (C) a reasonable allowance, as determined under regulations 20 adopted by the department, for overhead expenses directly related to exploring 21 for, developing, and producing oil or gas deposits located within leases or 22 properties or other land in the state; 23 (2) does not include 24 (A) depreciation, depletion, or amortization; 25 (B) royalty payments for oil or gas; 26 (C) taxes based on or measured by net income; 27 (D) interest or other financing charges or costs of raising equity 28 or debt capital; 29 (E) acquisition costs for a lease or property or exploration 30 license; 31 (F) costs arising from fraud, wilful misconduct, or negligence; 01 (G) fines or penalties imposed by law; 02 (H) costs of arbitration, litigation, or other dispute resolution 03 activities that involve the state or concern the rights or obligations among 04 owners of interests in, or rights to production from, one or more leases or 05 properties or a unit; 06 (I) donations; 07 (J) costs incurred in organizing a partnership, joint venture, or 08 other business entity or arrangement; 09 (K) amounts paid to indemnify the state; the exclusion 10 provided by this paragraph does not apply to the costs of obtaining insurance 11 or a surety bond from a third-party insurer or surety; 12 (L) surcharges levied under AS 43.55.201 or 43.55.300; 13 (M) for a transaction that is an internal transfer or is otherwise 14 not an arm's length transaction, expenditures incurred that are in excess of fair 15 market value; 16 (N) an expenditure incurred to purchase an interest in any 17 corporation, partnership, limited liability company, business trust, or any other 18 business entity, whether or not the transaction is treated as an asset sale for 19 federal income tax purposes; 20 (O) a tax levied under AS 43.55.011; 21 (P) the portion of costs incurred for dismantlement, removal, 22 surrender, or abandonment of a well, facility, pipeline, platform, or other 23 structure, or for the restoration of a lease, field, unit, area, body of water, or 24 right-of-way in conjunction with dismantlement, removal, surrender, or 25 abandonment, that is attributable to production of oil or gas occurring before 26 the effective date of this section; the portion is calculated as a ratio of 27 production of oil or gas associated with the well, facility, pipeline, platform, or 28 other structure, lease, field, unit, area, body of water, or right-of-way occurring 29 before the effective date of this section to all production of oil or gas 30 associated with that well, facility, pipeline, platform, or other structure, lease, 31 field, unit, area, body of water, or right-of-way through the end of the calendar 01 month before commencement of the dismantlement, removal, surrender, or 02 abandonment. 03 (e) A producer's lease expenditures must be adjusted by subtracting certain 04 payments or credits received by the producer, as provided in this subsection. If one or 05 more payments or credits subject to this subsection are received by a producer during 06 a month or, under (f) of this section, during a calendar year, and if either the total 07 amount of the payments or credits exceeds the amount of the producer's lease 08 expenditures or the producer has no lease expenditures, the producer shall nevertheless 09 subtract those payments or credits from the lease expenditures or from zero, 10 respectively, and the producer's adjusted lease expenditures for that month or calendar 11 year are a negative number and shall be applied to the calculation under (a) of this 12 section as a negative number. The payments or credits that a producer shall subtract 13 from the producer's lease expenditures, or from zero, under this subsection are 14 payments or credits, other than tax credits, received by the producer for 15 (1) the use by another person of a production facility in which the 16 producer has an ownership interest or the management by the producer of a production 17 facility under a management agreement providing for the producer to receive a 18 management fee; 19 (2) a reimbursement or similar payment that offsets the producer's 20 lease expenditures, including a payment from the state or federal government for 21 reimbursement of the producer's upstream costs, including costs for gathering, 22 separating, cleaning, dehydration, compressing, or other field handling associated with 23 the production of oil or gas upstream of the point of production; 24 (3) the sale or other transfer of 25 (A) an asset, including geological, geophysical, or well data or 26 interpretations, acquired by the producer as a result of a lease expenditure or an 27 expenditure that would be a lease expenditure if it were incurred on or after 28 April 1, 2006; for purposes of this subparagraph, 29 (i) if a producer removes from the state, for use outside 30 the state, an asset described in this subparagraph, the value of the asset 31 at the time it is removed is considered a payment received by the 01 producer for sale or transfer of the asset; 02 (ii) for a transaction that is an internal transfer or is 03 otherwise not an arm's length transaction, if the sale or transfer of the 04 asset is made for less than fair market value, the amount subtracted 05 must be the fair market value; and 06 (B) oil or gas 07 (i) that is not considered produced from a lease or 08 property under AS 43.55.020(e); and 09 (ii) the cost of acquiring which is a lease expenditure 10 incurred by the person that acquires the oil or gas. 11 (f) In place of the adjusted lease expenditures for a month under (a) of this 12 section, a producer may, at any time, elect to substitute, for every month of a calendar 13 year, 1/12 of the producer's adjusted lease expenditures for the calendar year. An 14 election made under this subsection applies to calculation of the tax under 15 AS 43.55.011(e) and (g). 16 (g) The department shall specify or approve a reasonable allocation method 17 for determining the portion of a cost that is appropriately treated as a lease expenditure 18 under (c) of this section if a cost that would otherwise constitute a lease expenditure 19 under (c) of this section is incurred to explore for, develop, or produce 20 (1) both an oil or gas deposit located within land outside the state and 21 an oil or gas deposit located within a lease or property, or other land, in the state; or 22 (2) an oil or gas deposit located partly within land outside the state and 23 partly within a lease or property, or other land, in the state. 24 (h) For purposes of AS 43.55.024(a) and (b) and only as to expenditures 25 incurred to explore for an oil or gas deposit located within land in which an explorer 26 does not own a working interest, the term "producer" in (b), (c), and (e) of this section 27 includes "explorer." 28 (i) The department may adopt regulations that establish additional standards 29 necessary to carrying out the purposes of this section. 30 (j) For purposes of this section, 31 (1) "explore" includes conducting geological or geophysical 01 exploration, including drilling a stratigraphic test well; 02 (2) "ordinary and necessary" has the meaning given to "ordinary and 03 necessary" in 26 U.S.C. 162 (Internal Revenue Code), as amended, and regulations 04 adopted under that section; 05 (3) "stratigraphic test well" means a well drilled for the sole purpose of 06 obtaining geological information to aid in exploring for an oil or gas deposit and the 07 target zones of which are located in the state. 08 Sec. 43.55.170. Additional nontransferable tax credit. (a) For a month that 09 ends before April 1, 2016, and for which a producer's tax liability under 10 AS 43.55.011(e) exceeds zero before application of any credits under this chapter, a 11 producer that qualifies under (c) of this section may take a tax credit under this 12 section. If the average amount of oil and gas produced a day during that month and 13 taxable under AS 43.55.011(e) is 14 (1) not more than 5,000 barrels of oil equivalent, the amount of the 15 credit 16 (A) for oil subject to tax under AS 43.55.011(e)(1) is five 17 percent of the producer's production tax value for that month under 18 AS 43.55.160(a); and 19 (B) for oil and gas subject to tax under AS 43.55.011(e)(2) is 20 22.5 percent of the producer's production tax value for that month under 21 AS 43.55.160(a); and 22 (2) more than 5,000 barrels of oil equivalent, the amount of the credit 23 (A) for oil subject to tax under AS 43.55.011(e)(1) is five 24 percent of the producer's production tax value for that month under 25 AS 43.55.160(a) multiplied by the quotient of 5,000 divided by the average 26 amount of oil and gas expressed as barrels of oil equivalent, produced a day 27 during that month and taxable under AS 43.55.011(e)(1); and 28 (B) for oil and gas subject to tax under AS 43.55.011(e)(2) is 29 22.5 percent of the producer's production tax value for that month under 30 AS 43.55.160(a) multiplied by the quotient of 5,000 divided by the average 31 amount of oil and gas expressed as barrels of oil equivalent, produced a day 01 during that month and taxable under AS 43.55.011(e)(2). 02 (b) A tax credit under this section 03 (1) may be applied only against the tax levied under AS 43.55.011(e); 04 (2) must be applied before any other credit is applied; 05 (3) is not transferable and may not be carried forward or used in a 06 different month; 07 (4) except as provided in (5) of this subsection, may not be applied if it 08 would cause the total of the tax credits applied by the producer under this section 09 during a calendar year to exceed $14,000,000; and 10 (5) may not be applied if it would cause the total of the tax credits 11 applied by the producer under this section during 2016 to exceed $3,500,000. 12 (c) On written application by a producer, including any information the 13 department may require, the department shall determine whether the producer 14 qualifies under this section for a calendar year. To qualify under this section, a 15 producer shall demonstrate that the producer's operation in the state or the producer's 16 ownership of an interest in a lease or property in the state as a distinct producer entity 17 would not result in the division among multiple producer entities of any production tax 18 liability under AS 43.55.011(e) that would be reasonably expected to be attributed to a 19 single producer entity if the tax credit provision of (a) of this section did not exist. 20 (d) For purposes of this section, a barrel of oil equivalent is 21 (1) one barrel of oil, in the case of oil; 22 (2) 6,000 cubic feet of gas, in the case of gas. 23 Sec. 43.55.180. Required reports. (a) The Department of Revenue shall 24 (1) study 25 (A) the effects of the tax rates under AS 43.55.011(f) and of 26 potential changes in those tax rates on state revenue and on oil and gas 27 exploration, development, and production on private land; and 28 (B) the fairness of the tax rates under AS 43.55.011(f) and of 29 potential changes in those tax rates for private landowners; and 30 (2) prepare a report on or before the first day of the 2013 regular 31 session of the legislature on the results of the study made under (1) of this subsection, 01 including a recommendation as to whether those tax rates should be changed; the 02 department shall notify the legislature that the report prepared under this paragraph is 03 available. 04 (b) The Department of Revenue shall 05 (1) study the effects of the credits authorized by AS 43.55.025 and 06 43.55.170 on state revenue, on the encouragement of exploration, development, and 07 production of oil and gas deposits located in the state, and on the encouragement of 08 new entrants into the oil and gas industry in the state; and 09 (2) prepare a report on or before the first day of the 2015 regular 10 session of the legislature on the results of the study made under (1) of this subsection, 11 and shall include with the report a recommendation as to whether the legislature 12 should extend the availability of the credits under AS 43.55.025 and 43.55.170 beyond 13 April 30, 2016; the department shall notify the legislature that the report prepared 14 under this paragraph is available. 15 * Sec. 27. AS 43.55.201 is amended to read: 16 Sec. 43.55.201. Surcharge levied. (a) Every producer of oil shall pay a 17 surcharge of $.01 [$.02] per barrel of oil produced from each lease or property in the 18 state, less any oil the ownership or right to which is exempt from taxation. 19 (b) The surcharge imposed by (a) of this section is in addition to the tax 20 imposed by AS 43.55.011 and is due on the last day of the month on oil produced 21 from each lease or property during the preceding month. The surcharge [SHALL 22 BE PAID IN THE SAME MANNER AS THE TAX IMPOSED BY AS 43.55.011 - 23 43.55.150; AND] is in addition to the surcharge imposed by AS 43.55.300 - 24 43.55.310. 25 (c) A producer of oil shall make reports of production in the same manner and 26 under the same penalties as required under AS 43.55.011 - 43.55.180 [AS 43.55.011 - 27 43.55.150]. 28 * Sec. 28. AS 43.55.201 is amended by adding a new subsection to read: 29 (d) Oil not considered under AS 43.55.020(e) to be produced from a lease or 30 property is not considered to be produced from a lease or property for purposes of this 31 section. 01 * Sec. 29. AS 43.55.300 is amended to read: 02 Sec. 43.55.300. Surcharge levied. (a) Every producer of oil shall pay a 03 surcharge of $.05 [$.03] per barrel of oil produced from each lease or property in the 04 state, less any oil the ownership or right to which is exempt from taxation. 05 (b) The surcharge imposed by (a) of this section is in addition to the tax 06 imposed by AS 43.55.011 and is due on the last day of the month on oil produced 07 from each lease or property during the preceding month. The surcharge [SHALL 08 BE PAID IN THE SAME MANNER AS THE TAX IMPOSED BY AS 43.55.011 - 09 43.55.150; AND] is in addition to the surcharge imposed by AS 43.55.201 - 10 43.55.231. 11 (c) A producer of oil shall make reports of production in the same manner and 12 under the same penalties as required under AS 43.55.011 - 43.55.180 [AS 43.55.011 - 13 43.55.150]. 14 * Sec. 30. AS 43.55.300 is amended by adding a new subsection to read: 15 (d) Oil not considered under AS 43.55.020(e) to be produced from a lease or 16 property is not considered to be produced from a lease or property for purposes of this 17 section. 18 * Sec. 31. AS 43.55.900(6) is repealed and reenacted to read: 19 (6) "gas" means 20 (A) all natural, associated, or casinghead gas; 21 (B) all hydrocarbons that 22 (i) are recovered by mechanical separation of well 23 fluids or by gas processing; and 24 (ii) exist in a gaseous phase at the completion of 25 mechanical separation and any gas processing; and 26 (C) all other hydrocarbons produced from a well not defined as 27 oil; 28 * Sec. 32. AS 43.55.900(7) is repealed and reenacted to read: 29 (7) "gross value at the point of production" means 30 (A) for oil, the value of the oil at the automatic custody transfer 31 meter or device through which the oil enters into the facilities of a carrier 01 pipeline or other transportation carrier in a condition of pipeline quality; in the 02 absence of an automatic custody transfer meter or device, "gross value at the 03 point of production" means the value of the oil at the mechanism or device to 04 measure the quantity of oil that has been approved by the department for that 05 purpose, through which the oil is tendered and accepted in a condition of 06 pipeline quality into the facilities of a carrier pipeline or other transportation 07 carrier or into a field topping plant; 08 (B) for gas, other than gas described in (C) of this paragraph, 09 that is 10 (i) not subjected to or recovered by mechanical 11 separation or gas processing, the value of the gas at the first point 12 where the gas is accurately metered; 13 (ii) subjected to or recovered by mechanical separation 14 but not gas processing, the value of the gas at the first point where the 15 gas is accurately metered after completion of mechanical separation; 16 (iii) subjected to or recovered by gas processing, the 17 value of the gas at the first point where the gas is accurately metered 18 after completion of gas processing; 19 (C) for gas run through an integrated gas processing and gas 20 treatment facility that does not accurately meter the gas after the gas 21 processing and before the gas treatment, the value of the gas at the first point 22 where gas processing is completed or where gas treatment begins, whichever is 23 further upstream; 24 * Sec. 33. AS 43.55.900(10) is repealed and reenacted to read: 25 (10) "oil" means 26 (A) crude petroleum oil; and 27 (B) all liquid hydrocarbons that are recovered by mechanical 28 separation of well fluids or by gas processing; 29 * Sec. 34. AS 43.55.900 is amended by adding new paragraphs to read: 30 (17) "explorer" means a person who, in exploring for new oil or gas 31 reserves, incurs expenditures; 01 (18) "gas processing" 02 (A) means processing a gaseous mixture of hydrocarbons 03 (i) by means of absorption, adsorption, externally 04 applied refrigeration, artificial compression followed by adiabatic 05 expansion using the Joule-Thomson effect, or another physical process 06 that is not mechanical separation; 07 (ii) for the purpose of extracting and recovering liquid 08 hydrocarbons; and 09 (iii) upstream of any gas treatment and upstream of the 10 inlet of any gas pipeline system transporting gas to a market; 11 (B) does not include gas treatment; 12 (19) "gas treatment" 13 (A) means conditioning gas and removing from gas 14 nonhydrocarbon substances for the purpose of rendering the gas acceptable for 15 tender and acceptance into a gas pipeline system; and 16 (B) includes incidentally removing liquid hydrocarbons from 17 the gas; 18 (20) "oil and gas lease" includes an oil and gas lease, a gas only lease, 19 and an oil only lease. 20 * Sec. 35. AS 43.55.011(a), 43.55.011(b), 43.55.011(c), 43.55.012, 43.55.013, 43.55.016, 21 43.55.025(k)(1), 43.55.025(k)(3), 43.55.900(1), 43.55.900(8), 43.55.900(11), 43.55.900(12), 22 and 43.55.900(16) are repealed. 23 * Sec. 36. The uncodified law of the State of Alaska is amended by adding a new section to 24 read: 25 APPLICABILITY. (a) Sections 5, 7 - 10, 12, 13, 15 - 18, 20, and 24 - 35 of this Act 26 apply to oil and gas produced on or after April 1, 2006. 27 (b) Section 11 of this Act applies to oil and gas produced before, on, or after the 28 effective date of sec. 11 of this Act. 29 * Sec. 37. The uncodified law of the State of Alaska is amended by adding a new section to 30 read: 31 TRANSITIONAL PROVISIONS. (a) Notwithstanding any contrary provision of 01 AS 43.55.024(a), enacted by sec. 12 of this Act, for oil and gas produced on or after April 1, 02 2006, and before January 1, 2007, the phrase "every month an annualized tax credit in an 03 amount equal to 2 1/12 percent" in AS 43.55.024(a)(1), enacted by sec. 12 of this Act, shall be 04 replaced by the phrase "every month during the period April 1, 2006, through December 31, 05 2006, an annualized tax credit in an amount equal to 2 7/9 percent." 06 (b) Notwithstanding any contrary provision of AS 43.55.024(e), enacted by sec. 12 of 07 this Act, for oil and gas produced on or after April 1, 2006, and before January 1, 2007, the 08 phrase "a calendar year" in AS 43.55.024(e), enacted by sec. 13 of this Act, shall be replaced 09 by the phrase "the last nine months of the calendar year." 10 (c) Notwithstanding any contrary provision of AS 43.55.024(i)(2), enacted by sec. 12 11 of this Act, for oil and gas produced on or after April 1, 2006, and before January 1, 2007, 12 (1) the number "1/24" in AS 43.55.024(i)(2)(B), enacted by sec. 12 of this 13 Act, shall be replaced by the number "1/18"; 14 (2) the phrase "calendar year" in AS 43.55.024(i)(2)(B), enacted by sec. 12 of 15 this Act, shall be replaced by the phrase "last nine months of the calendar year." 16 (d) Notwithstanding any contrary provision of AS 43.55.160(f), enacted by sec. 26 of 17 this Act, for oil and gas produced on or after April 1, 2006, and before January 1, 2007, the 18 phrase "for every month of a calendar year, 1/12 of the producer's adjusted lease expenditures 19 for the calendar year" in AS 43.55.160(f), enacted by sec. 26 of this Act, shall be replaced by 20 the phrase "for each of the last nine months of 2006, one-ninth of the producer's adjusted lease 21 expenditures for that nine-month period." 22 (e) Notwithstanding any contrary provision of AS 43.55.170(b), enacted by sec. 26 of 23 this Act, for oil and gas produced on or after April 1, 2006, and before January 1, 2007, the 24 amount of "$14,000,000" in AS 43.55.170(b)(4), enacted by sec. 26 of this Act, shall be 25 replaced by "$10,500,000." 26 (f) For oil and gas produced before April 1, 2006, the provisions of AS 43.55, and 27 regulations adopted under AS 43.55, that were in effect before April 1, 2006, and that were 28 applicable to the oil and gas continue to apply to that oil and gas. 29 (g) Notwithstanding any contrary provision of AS 43.55.020(a), as repealed and 30 reenacted by sec. 7 of this Act, for oil and gas produced on or after April 1, 2006, and before 31 the first day of the first month that begins at least 180 days after the effective date of sec. 7 of 01 this Act, 02 (1) the amount of the taxes that would have been levied on the producer under 03 AS 43.55, as the provisions of that chapter read on March 31, 2006, is due on the last day of 04 each calendar month on the oil and gas that was produced from each lease or property during 05 the preceding month; 06 (2) the portion, if any, of the taxes levied under AS 43.55.011(e) - (g), enacted 07 by sec. 5 of this Act, that is due under AS 43.55.020(a), as repealed and reenacted by sec. 7 of 08 this Act, and that remains unpaid, net of any credits applied as allowed by law, is due on the 09 last day of the first month that begins at least 180 days after the effective date of sec. 5 of this 10 Act. 11 (h) Notwithstanding any contrary provision of AS 43.55.030(a), as amended by sec. 12 18 of this Act, for oil and gas produced on or after April 1, 2006, and before the first day of 13 the first month that begins at least 180 days after the effective date of sec. 18 of this Act, the 14 person paying the tax shall file with the Department of Revenue, at the time an amount of tax 15 is due 16 (1) under (g)(1) of this section, the statement required under former 17 AS 43.55.030(a), as that subsection read on March 31, 2006; and 18 (2) under (g)(2) of this section, the statements required under 19 AS 43.55.030(a), as amended by sec. 18 of this Act. 20 (i) For purposes of taxes to be calculated and due under (g)(1) of this section and 21 statements to be filed under (h)(1) of this section, regulations that were adopted by the 22 Department of Revenue under AS 43.55, as the provisions of that chapter read on March 31, 23 2006, and that were in effect on that date apply to those taxes and statements. 24 * Sec. 38. The uncodified law of the State of Alaska is amended by adding a new section to 25 read: 26 TRANSITION: REGULATIONS AND RETROACTIVITY OF REGULATIONS. (a) 27 The Department of Revenue may proceed to adopt regulations to implement the changes 28 made by this Act. The regulations take effect under AS 44.62 (Administrative Procedure Act), 29 but not before the effective date of the law implemented by the regulation. 30 (b) Notwithstanding any contrary provision of AS 44.62.240, a regulation adopted by 31 the Department of Revenue to implement, interpret make specific, or otherwise carry out the 01 provisions of secs. 5, 7 - 10, 12, 13, 15 - 18, 20, 24 - 35, and 37 of this Act may apply 02 retroactively as of April 1, 2006, if the Department of Revenue expressly designates in the 03 regulation that the regulation applies retroactively to that date. 04 * Sec. 39. The uncodified law of the State of Alaska is amended by adding a new section to 05 read: 06 REVISOR'S INSTRUCTION. The revisor of statutes is instructed to change the 07 heading of 08 (1) AS 43.55 from "Oil and Gas Production Taxes and Oil Surcharge" to "Oil 09 and Gas Production Tax and Oil Surcharge"; 10 (2) article 1 of AS 43.55 from "Oil and Gas Properties Production Taxes" to 11 "Oil and Gas Production Tax"; 12 (3) AS 43.55.011 from "Oil production tax" to "Oil and gas production tax"; 13 (4) AS 43.55.025 from "Tax credit for oil and gas exploration or gas only 14 exploration" to "Alternative tax credit for oil and gas exploration"; 15 (5) AS 43.55.150 from "Determination of gross value" to "Determination of 16 gross value at the point of production." 17 * Sec. 40. The uncodified law of the State of Alaska is amended by adding a new section to 18 read: 19 RETROACTIVITY OF PROVISIONS OF ACT. Sections 5, 7 - 10, 12, 13, 15 - 18, 20 20, 24 - 37 of this Act apply retroactively to April 1, 2006, and apply to oil and gas produced 21 after March 31, 2006. 22 * Sec. 41. This Act takes effect immediately under AS 01.10.070(c).