00 CS FOR SENATE BILL NO. 309(RES) 01 "An Act amending and extending the exploration and development incentive tax credit 02 under the Alaska Net Income Tax Act for operators and working interest owners 03 directly engaged in the exploration for and development of gas from a lease or property 04 in the state; relating to a credit against the tax on the production of oil and gas for a 05 qualified capital expenditure and for certain losses and expenditures; providing a credit 06 against the tax on the production of oil and gas for drilling certain exploration wells in 07 the Cook Inlet sedimentary basin; providing for an effective date by amending the 08 effective date for sec. 2, ch. 61, SLA 2003; and providing for an effective date." 09 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 10 * Section 1. AS 43.20.043(a) is amended to read: 11 (a) Subject to the terms and conditions of this section, and in addition to any 12 other credit authorized to the taxpayer by this chapter, a taxpayer that is an operator or 01 working interest owner directly engaging in the exploration for and development of 02 gas may apply as a credit against the state tax liability that may be imposed on the 03 taxpayer under this chapter, 04 (1) for a tax year beginning after December 31, 2002, and before 05 January 1, 2010, 06 (A) [(1)] 10 percent of the taxpayer's qualified capital 07 investment; and 08 (B) [(2)] 10 percent of the annual cost incurred by the taxpayer 09 for qualified services in the state during each tax year for which a credit is 10 allowable for a qualified capital investment for any gas reserve of the 11 taxpayer or for each year that qualified costs are incurred for a gas 12 reserve for which the taxpayer previously elected to claim a credit(A) of 13 this paragraph; and 14 (2) for a tax year beginning after December 31, 2009, 15 (A) 25 percent of the taxpayer's qualified capital 16 investment; and 17 (B) 25 percent of the annual cost incurred by the taxpayer 18 for qualified services in the state during each tax year for which a credit is 19 allowable for a qualified capital investment for any gas reserve of the 20 taxpayer or for each year that qualified costs are incurred for a gas 21 reserve for which the taxpayer previously elected to claim a credit under 22 (A) of this paragraph [UNDER (1) OF THIS SUBSECTION]. 23 * Sec. 2. AS 43.20.043(b) is amended to read: 24 (b) Expenditures qualifying for the taxpayer's qualified investment credit 25 under (a)(1)(A) or (a)(2)(A) [(a)(1)] of this section must be 26 (1) cash expenditures or binding payment agreements entered into after 27 (A) June 30, 2003, and before January 1, 2010, if the claim 28 of the credit is made under (a)(1)(A) of this section; or 29 (B) December 31, 2009, if the claim of the credit is made 30 under (a)(2)(A) of this section; and 31 (2) made for assets first placed in service in the state in or before the 01 tax year in which the credit is claimed through the date the 02 (A) wells [RESERVES] produce gas for sale and delivery; for 03 purposes of this subparagraph [PARAGRAPH], "placed in service in the 04 state" means that the first use of the qualified investment is in this state; if the 05 property on which the claim of the credit is based has been used elsewhere in 06 the tax year of acquisition and is brought to this state during that year or a 07 subsequent year, the property does not qualify for the investment credit; or 08 (B) a gas well is determined not to be capable of production 09 in commercial quantities. 10 * Sec. 3. AS 43.20.043(c) is amended to read: 11 (c) The credit each [PER] tax year allowed by (a) of this section may not 12 exceed [50 PERCENT OF] the taxpayer's total tax liability under this chapter, but 13 shall be calculated before the application of any other credits allowed under this 14 chapter. An unused portion of the credit for the tax year 15 (1) may be carried forward into one or more of the following tax years, 16 except that the unused credit from one tax year may not be carried forward for more 17 than five following tax years; 18 (2) shall be applied to the taxpayer's tax liability under this chapter 19 during the following tax year before allowance of a credit allowed by (a) of this 20 section for that following tax year. 21 * Sec. 4. AS 43.20.043(e) is amended to read: 22 (e) A taxpayer entitled to a credit under this section 23 (1) may not convey, assign, or transfer the credit to another taxpayer or 24 business entity unless the conveyance, assignment, or transfer of the credit is part of 25 the conveyance, assignment, or transfer of the taxpayer's business; 26 (2) forfeits the credit to which the taxpayer is entitled during the tax 27 year and any carryover of it under (c) of this section, but does not forfeit the portion of 28 the credit that accrued in a previous taxable year that may be carried over under (c) of 29 this section, if the taxpayer 30 (A) disposes of the qualified capital investment; 31 (B) takes the qualified investment out of service; or 01 (C) transfers the qualified investment out of this state; 02 (3) may not include in any rate base for a regulated facility 03 submitted to a regulatory agency charged with determining an appropriate tariff 04 the cost of any qualified capital investment or qualified service that has been 05 offset by receipt of a credit under this chapter. 06 * Sec. 5. AS 43.20.043(g) is amended to read: 07 (g) A taxpayer that [WHO] obtains a credit for a qualified capital 08 investment or cost incurred for qualified services under this section may not also 09 claim a tax credit or royalty modification for the same qualified capital investment 10 or cost incurred for qualified services under AS 38.05.180(i), AS 41.09.010, 11 AS 43.55.023, or 43.55.025 [PROVIDED FOR UNDER ANY OTHER TITLE]. 12 However, a taxpayer may elect not to obtain [, AT THE TAXPAYER'S ELECTION, 13 FORGO] a credit under this section in order [TO CONTINUE] to qualify for a credit 14 provided under AS 38.05.180(i), AS 41.09.010, AS 43.55.023, or 43.55.025 [FOR IN 15 ANOTHER TITLE]. 16 * Sec. 6. AS 43.20.043(i)(1) is amended to read: 17 (1) "qualified capital investment" means a cash expenditure or binding 18 payment agreement, as described in (b)(1) of this section, for real property or tangible 19 personal property used in this state in the exploration and development of any gas 20 reserve regardless of whether there has been commercial production in the area 21 or whether the exploration and development activity results in the production of 22 gas or a well not capable of production in commercial quantities [RESERVES IN 23 A GAS RESERVOIR FOR WHICH THERE HAS NOT BEEN COMMERCIAL 24 PRODUCTION IF THE RESERVES PRODUCE GAS FOR SALE AND 25 DELIVERY]; in this paragraph, "property" includes 26 (A) property used in the operation or maintenance of facilities 27 for exploration or development of gas; 28 (B) property that is placed in use under a capitalized lease or an 29 operating lease; and 30 (C) the following property used for the exploration and 31 development of gas: 01 (i) machinery, appliances, supplies, and equipment; 02 (ii) drilling rigs, wells, gathering lines and transmission 03 lines, pumping stations, compressor stations, power plants designed 04 for field operations, gas processing plants, and gas treatment 05 plants, but not including liquefied natural gas or manufacturing 06 plants [, TOPPING PLANTS, AND PROCESSING UNITS]; 07 (iii) roads, docks and other port facilities, and helicopter 08 pads; 09 (iv) maintenance equipment and facilities, and 10 maintenance camps and other related facilities; and 11 (v) communications facilities owned by a person whose 12 principal business in the state is the exploration for or development of 13 gas and whose operation of the communications facilities directly 14 relates to the conduct of that business; 15 * Sec. 7. AS 43.20.043 is amended by adding a new subsection to read: 16 (j) A taxpayer shall claim the credit authorized in (a) of this section on a 17 timely filed tax return for the year in which the qualified capital investment is made, 18 on a timely filed amended tax return, or on a timely filed tax return for the year 19 immediately following the year in which the qualified capital investment is made. The 20 election to apply the credit authorized in (a) of this section may not be an irrevocable 21 election. 22 * Sec. 8. AS 43.55.023(a) is amended to read: 23 (a) A producer or explorer may take a tax credit for a qualified capital 24 expenditure as follows: 25 (1) notwithstanding that a qualified capital expenditure may be a 26 deductible lease expenditure for purposes of calculating the production tax value of oil 27 and gas under AS 43.55.160(a), unless a credit for that expenditure is taken under 28 AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or AS 43.55.025, a producer or 29 explorer that incurs a qualified capital expenditure may also elect to apply a tax credit 30 against a tax levied by AS 43.55.011(e) in the amount of 20 percent of that 31 expenditure; [HOWEVER, NOT MORE THAN HALF OF THE TAX CREDIT MAY 01 BE APPLIED FOR A SINGLE CALENDAR YEAR;] 02 (2) a producer or explorer may take a credit for a qualified capital 03 expenditure incurred in connection with geological or geophysical exploration or in 04 connection with an exploration well only if the producer or explorer 05 (A) agrees, in writing, to the applicable provisions of 06 AS 43.55.025(f)(2); 07 (B) submits to the Department of Natural Resources all data 08 that would be required to be submitted under AS 43.55.025(f)(2). 09 * Sec. 9. AS 43.55.023(d) is amended to read: 10 (d) Except as limited by (i) of this section, a person that is entitled to take a tax 11 credit under this section that wishes to transfer the unused credit to another person or 12 obtain a cash payment under AS 43.55.028 may apply to the department for a 13 transferable tax credit certificate [CERTIFICATES]. An application under this 14 subsection must be in a form prescribed by the department and must include 15 supporting information and documentation that the department reasonably requires. 16 The department shall grant or deny an application, or grant an application as to a lesser 17 amount than that claimed and deny it as to the excess, not later than 120 days after the 18 latest of (1) March 31 of the year following the calendar year in which the qualified 19 capital expenditure or carried-forward annual loss for which the credit is claimed was 20 incurred; (2) the date the statement required under AS 43.55.030(a) or (e) was filed for 21 the calendar year in which the qualified capital expenditure or carried-forward annual 22 loss for which the credit is claimed was incurred; or (3) the date the application was 23 received by the department. If, based on the information then available to it, the 24 department is reasonably satisfied that the applicant is entitled to a credit, the 25 department shall issue the applicant a [TWO TRANSFERABLE] tax credit certificate 26 [CERTIFICATES, EACH FOR HALF OF THE AMOUNT OF THE CREDIT]. The 27 credit shown on [ONE OF] the certificate [TWO CERTIFICATES] is available for 28 immediate use. [THE CREDIT SHOWN ON THE SECOND OF THE TWO 29 CERTIFICATES MAY NOT BE APPLIED AGAINST A TAX FOR A CALENDAR 30 YEAR EARLIER THAN THE CALENDAR YEAR FOLLOWING THE 31 CALENDAR YEAR IN WHICH THE CERTIFICATE IS ISSUED, AND THE 01 CERTIFICATE MUST CONTAIN A CONSPICUOUS STATEMENT TO THAT 02 EFFECT.] A certificate issued under this subsection does not expire. 03 * Sec. 10. AS 43.55.025(a) is amended to read: 04 (a) Subject to the terms and conditions of this section, a credit against the 05 production tax levied by AS 43.55.011(e) is allowed for exploration expenditures that 06 qualify under (b) of this section in an amount equal to one of the following: 07 (1) 30 percent of the total exploration expenditures that qualify only 08 under (b) and (c) of this section; 09 (2) 30 percent of the total exploration expenditures that qualify only 10 under (b) and (d) of this section; 11 (3) 40 percent of the total exploration expenditures that qualify under 12 (b), (c), and (d) of this section; [OR] 13 (4) 40 percent of the total exploration expenditures that qualify only 14 under (b) and (e) of this section; or 15 (5) 80, 90, or 100 percent, or a lesser amount described in (m) of 16 this section, of the total exploration expenditures described in (b)(1) and (2) of 17 this section and not excluded by (b)(3) and (4) of this section that qualify only 18 under (m) of this section. 19 * Sec. 11. AS 43.55.025 is amended by adding a new subsection to read: 20 (m) The first three unaffiliated persons that each drill an offshore exploration 21 well for the purpose of discovering oil or gas in Cook Inlet that penetrates and 22 evaluates a prospect in the pre-Tertiary zone using a jack-up drill rig are eligible for 23 the credit under this subsection. The person that drills the first exploration well is 24 entitled to a credit in the amount of 100 percent of its exploration expenditures or 25 $25,000,000, whichever is less; the person that drills the second exploration well using 26 the same jack-up drill rig is entitled to a credit in the amount of 90 percent of its 27 exploration expenditures or $22,500,000, whichever is less; and the person that drills 28 the third exploration well using the same jack-up drill rig is entitled to a credit in the 29 amount of 80 percent of its exploration expenditures or $20,000,000, whichever is 30 less. A person or an affiliate of a person drilling an exploration well is not entitled to a 31 credit for more than one exploration well under this subsection. The department shall 01 make a determination of the order in which the wells are drilled based on the date and 02 time that the drill bit first turns to the right against the seafloor for the purpose of 03 drilling the well. Exploration expenditures eligible for the credit in this subsection may 04 include the necessary and reasonable costs to modify an existing jack-up rig for use in 05 Cook Inlet, may not include the cost to construct or manufacture a jack-up rig, and, 06 notwithstanding (b) of this section, must be incurred for work performed after June 30, 07 2010. If the exploration well for which a credit is received under this subsection 08 results in sustained production of oil or gas from a reservoir discovered by the 09 exploration well, and notwithstanding that the credit may have been transferred under 10 (g) of this section, 50 percent of the amount of the credit received shall be repaid to 11 the department by the person that received the credit in equal monthly installments 12 over a 10-year period commencing 60 days after the start of sustained production of 13 oil or gas. Whether the exploration well for which a credit is requested under this 14 subsection penetrated and evaluated a prospect in the pre-Tertiary zone and the 15 exploration well resulted in sustained production of oil or gas from a reservoir 16 discovered by the exploration well shall be determined by the commissioner of natural 17 resources and reported to the commissioner. A taxpayer that obtains a credit under this 18 subsection may not claim a tax credit under AS 43.55.023 or another provision in this 19 section for the same exploration expenditure. In this subsection, 20 (1) "jack-up rig" means a mobile drilling platform with extendible legs 21 for support on the ocean floor; 22 (2) "reservoir" means an oil and gas accumulation, discovered and 23 evaluated by testing, that is separate from any other accumulation of oil and gas; 24 (3) "sustained production" means production of oil or gas from a 25 reservoir into a pipeline or other means of transportation to market, but does not 26 include testing, evaluation, or pilot production. 27 * Sec. 12. The uncodified law of the State of Alaska enacted by sec. 3, ch. 61, SLA 2003, is 28 amended to read: 29 Sec. 3. CLAIM OF GAS EXPLORATION AND DEVELOPMENT TAX 30 CREDIT CONTINUED. A taxpayer who, on the effective date of repeal of 31 AS 43.20.043 by secs. 2 and 5, ch. 61, SLA 2003, as amended by sec. 14 [SEC. 2] of 01 this 2010 Act, claims the balance of any unused portion of the gas exploration and 02 development tax credit as a carry-forward under AS 43.20.043(c), may, 03 notwithstanding the repeal of that subsection, continue to claim the balance of the 04 credit until the claim of the credit is exhausted or until the tax year ending 05 December 31, 2024 [2017], whichever occurs earlier. The provisions of AS 43.20.043 06 as they read on the day immediately preceding the effective date of the repeal of that 07 section apply to the claim of the credit if carried forward under this section. 08 * Sec. 13. AS 43.55.028(e)(2) and 43.55.028(e)(3) are repealed. 09 * Sec. 14. Section 5, ch. 61, SLA 2003, is amended to read: 10 Sec. 5. Section 2, ch. 61, SLA 2003, [OF THIS ACT] takes effect January 1, 11 2020 [2013]. 12 * Sec. 15. This Act takes effect immediately under AS 01.10.070(c).