HB 231: "An Act relating to tax credits applicable to the oil and gas production tax based on capital expenditures, including capital expenditures incurred for a production facility for new oil and gas production; relating to the alternative tax credit for oil and gas exploration; and providing for an effective date."
00 HOUSE BILL NO. 231 01 "An Act relating to tax credits applicable to the oil and gas production tax based on 02 capital expenditures, including capital expenditures incurred for a production facility 03 for new oil and gas production; relating to the alternative tax credit for oil and gas 04 exploration; and providing for an effective date." 05 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 06 * Section 1. The uncodified law of the State of Alaska is amended by adding a new section 07 to read: 08 SHORT TITLE. This Act may be known as The Alaska Oil Production Enhancement 09 Act. 10 * Sec. 2. AS 43.20.043(g) is amended to read: 11 (g) A taxpayer that obtains a credit for a qualified capital investment or cost 12 incurred for qualified services under this section may not also claim a tax credit or 13 royalty modification for the same qualified capital investment or cost incurred for 14 qualified services under AS 38.05.180(i), AS 41.09.010, AS 43.55.023, [OR]
01 43.55.025, or 43.55.026. However, a taxpayer may elect not to obtain a credit under 02 this section in order to qualify for a credit provided under AS 38.05.180(i), 03 AS 41.09.010, AS 43.55.023, [OR] 43.55.025, or 43.55.026. 04 * Sec. 3. AS 43.55.023(a) is amended to read: 05 (a) A producer or explorer may take a tax credit for a qualified capital 06 expenditure as follows: 07 (1) except as limited by (p) of this section, notwithstanding that a 08 qualified capital expenditure may be a deductible lease expenditure for purposes of 09 calculating the production tax value of oil and gas under AS 43.55.160(a), unless a 10 credit for that expenditure is taken under AS 38.05.180(i), AS 41.09.010, 11 AS 43.20.043, [OR] AS 43.55.025, or 43.55.026, a producer or explorer that incurs a 12 qualified capital expenditure may also elect to apply a tax credit against a tax levied by 13 AS 43.55.011(e) in the amount of 20 percent of that expenditure; however, not more 14 than half of the tax credit may be applied for a single calendar year; 15 (2) a producer or explorer may take a credit for a qualified capital 16 expenditure incurred in connection with geological or geophysical exploration or in 17 connection with an exploration well only if the producer or explorer 18 (A) agrees, in writing, to the applicable provisions of 19 AS 43.55.025(f)(2); 20 (B) submits to the Department of Natural Resources all data 21 that would be required to be submitted under AS 43.55.025(f)(2). 22 * Sec. 4. AS 43.55.023(d) is amended to read: 23 (d) Except as limited by (i) and (p) of this section, a person that is entitled to 24 take a tax credit under this section that wishes to transfer the unused credit to another 25 person or obtain a cash payment under AS 43.55.028 may apply to the department for 26 transferable tax credit certificates. An application under this subsection must be in a 27 form prescribed by the department and must include supporting information and 28 documentation that the department reasonably requires. The department shall grant or 29 deny an application, or grant an application as to a lesser amount than that claimed and 30 deny it as to the excess, not later than 120 days after the latest of (1) March 31 of the 31 year following the calendar year in which the qualified capital expenditure or carried-
01 forward annual loss for which the credit is claimed was incurred; (2) the date the 02 statement required under AS 43.55.030(a) or (e) was filed for the calendar year in 03 which the qualified capital expenditure or carried-forward annual loss for which the 04 credit is claimed was incurred; or (3) the date the application was received by the 05 department. If, based on the information then available to it, the department is 06 reasonably satisfied that the applicant is entitled to a credit, the department shall issue 07 the applicant two transferable tax credit certificates, each for half of the amount of the 08 credit. The credit shown on one of the two certificates is available for immediate use. 09 The credit shown on the second of the two certificates may not be applied against a tax 10 for a calendar year earlier than the calendar year following the calendar year in which 11 the certificate is issued, and the certificate must contain a conspicuous statement to 12 that effect. A certificate issued under this subsection does not expire. 13 * Sec. 5. AS 43.55.023(g) is amended to read: 14 (g) The issuance of a transferable tax credit certificate under (d) of this 15 section or former (m) of this section or the purchase of a certificate under 16 AS 43.55.028 does not limit the department's ability to later audit a tax credit claim to 17 which the certificate relates or to adjust the claim if the department determines, as a 18 result of the audit, that the applicant was not entitled to the amount of the credit for 19 which the certificate was issued. The tax liability of the applicant under 20 AS 43.55.011(e) and 43.55.017 - 43.55.180 is increased by the amount of the credit 21 that exceeds that to which the applicant was entitled, or the applicant's available valid 22 outstanding credits applicable against the tax levied by AS 43.55.011(e) are reduced 23 by that amount. If the applicant's tax liability is increased under this subsection, the 24 increase bears interest under AS 43.05.225 from the date the transferable tax credit 25 certificate was issued. For purposes of this subsection, an applicant that is an explorer 26 is considered a producer subject to the tax levied by AS 43.55.011(e). 27 * Sec. 6. AS 43.55.023(l) is amended to read: 28 (l) Except as limited by (p) of this section, a [A] producer or explorer may 29 apply for a tax credit for a well lease expenditure incurred [IN THE STATE SOUTH 30 OF 68 DEGREES NORTH LATITUDE] after June 30, 2011, for a lease or property 31 with commercial production before January 1, 2012 [JUNE 30, 2010], as follows:
01 (1) notwithstanding that a well lease expenditure [INCURRED IN 02 THE STATE SOUTH OF 68 DEGREES NORTH LATITUDE] may be a deductible 03 lease expenditure for purposes of calculating the production tax value of oil and gas 04 under AS 43.55.160(a), unless a credit for that expenditure is taken under (a) of this 05 section, AS 38.05.180(i), AS 41.09.010, AS 43.20.043, or AS 43.55.025, a producer 06 or explorer that incurs a well lease expenditure before January 1, 2020, [IN THE 07 STATE SOUTH OF 68 DEGREES NORTH LATITUDE] may elect to apply a tax 08 credit against a tax levied by AS 43.55.011(e) in the amount of 40 percent of the 09 expenditures during a calendar year that exceed the average annual well-related 10 expenditures for calendar years 2008, 2009, and 2010; the producer or explorer 11 shall submit the amount of well-related expenditures for each of calendar years 12 2008, 2009, and 2010 at the time an election is made to apply the credit 13 authorized by this subsection [THAT EXPENDITURE; A TAX CREDIT UNDER 14 THIS PARAGRAPH MAY BE APPLIED FOR A SINGLE CALENDAR YEAR]; 15 (2) a producer or explorer may take a credit for a well lease 16 expenditure incurred [IN THE STATE SOUTH OF 68 DEGREES NORTH 17 LATITUDE] in connection with geological or geophysical exploration or in 18 connection with an exploration well only if the producer or explorer 19 (A) agrees, in writing, to the applicable provisions of 20 AS 43.55.025(f)(2); and 21 (B) submits to the Department of Natural Resources all data 22 that would be required to be submitted under AS 43.55.025(f)(2). 23 * Sec. 7. AS 43.55.023(n) is amended to read: 24 (n) For the purposes of (l) [AND (m)] of this section, a well lease expenditure 25 [INCURRED IN THE STATE SOUTH OF 68 DEGREES NORTH LATITUDE] is a 26 lease expenditure that is 27 (1) directly related to an exploration well, a stratigraphic test well, a 28 producing well, or an injection well other than a disposal well, [LOCATED IN THE 29 STATE SOUTH OF 68 DEGREES NORTH LATITUDE,] if the expenditure is a 30 qualified capital expenditure and an intangible drilling and development cost 31 authorized under 26 U.S.C. (Internal Revenue Code), as amended, and 26 C.F.R.
01 1.612-4, regardless of the elections made under 26 U.S.C. 263(c); in this paragraph, an 02 expenditure directly related to a well includes an expenditure for well sidetracking, 03 well deepening, well completion or recompletion, or well workover, regardless of 04 whether the well is or has been a producing well; or 05 (2) an expense for seismic work conducted within the boundaries of a 06 production or exploration unit. 07 * Sec. 8. AS 43.55.023 is amended by adding a new subsection to read: 08 (p) The amount of credit for a capital expenditure under (a) or (l) of this 09 section for an expenditure that is also a lease expenditure under AS 43.55.165 is 10 reduced by the amount necessary so that the tax benefit percentage is not more than 85 11 percent of the capital expenditure. The amount of credit for a capital expenditure 12 under (a) or (l) of this section that may not be taken because of the limitation in this 13 subsection may not be applied in a later calendar year under (c) of this section and 14 may not be included in an application for a tax credit certificate under (d) of this 15 section. In this subsection, "tax benefit percentage" means the sum of the average 16 monthly tax rate under AS 43.55.011(e) and (g) for the calendar year in which the 17 credit is taken and the percentage of the capital expenditure that may be taken as a 18 credit under (a) or (l) of this section. 19 * Sec. 9. AS 43.55.025(a) is amended to read: 20 (a) Subject to the terms and conditions of this section and except as limited 21 by (n) of this section, a credit against the production tax levied by AS 43.55.011(e) is 22 allowed for exploration expenditures that qualify under (b) of this section in an 23 amount equal to 50 [ONE OF THE FOLLOWING: 24 (1) 30] percent of the total exploration expenditures except that the 25 amount of the credit is [THAT QUALIFY ONLY UNDER (b) AND (c) OF THIS 26 SECTION; 27 (2) 30 PERCENT OF THE TOTAL EXPLORATION 28 EXPENDITURES THAT QUALIFY ONLY UNDER (b) AND (d) OF THIS 29 SECTION; 30 (3) 40 PERCENT OF THE TOTAL EXPLORATION 31 EXPENDITURES THAT QUALIFY UNDER (b), (c), AND (d) OF THIS SECTION;
01 (4) 40 PERCENT OF THE TOTAL EXPLORATION 02 EXPENDITURES THAT QUALIFY ONLY UNDER (b) AND (e) OF THIS 03 SECTION; OR 04 (5)] 80, 90, or 100 percent, or a lesser amount described in (l) of this 05 section, of the total exploration expenditures described in (b)(1) and (2) of this section 06 and not excluded by (b)(3) and (4) of this section that qualify only under (l) of this 07 section. 08 * Sec. 10. AS 43.55.025(b) is amended to read: 09 (b) To qualify for the production tax credit under (a) of this section, an 10 exploration expenditure must be incurred for work performed after June 30, 2008, and 11 before July 1, 2021 [2016], and 12 (1) may be for seismic or other geophysical exploration costs not 13 connected with a specific well; 14 (2) if for an exploration well, 15 (A) must be incurred by an explorer that holds an interest in the 16 exploration well for which the production tax credit is claimed; 17 (B) may be for either a well that encounters an oil or gas 18 deposit or a dry hole; 19 (C) must be for a well that has been completed, suspended, or 20 abandoned at the time the explorer claims the tax credit under (f) of this 21 section; and 22 (D) must be for goods, services, or rentals of personal property 23 reasonably required for the surface preparation, drilling, casing, cementing, 24 and logging of an exploration well, and, in the case of a dry hole, for the 25 expenses required for abandonment if the well is abandoned within 18 months 26 after the date the well was spudded; 27 (3) may not be for administration, supervision, engineering, or lease 28 operating costs; geological or management costs; community relations or 29 environmental costs; bonuses, taxes, or other payments to governments related to the 30 well; costs, including repairs and replacements, arising from or associated with fraud, 31 wilful misconduct, gross negligence, criminal negligence, or violation of law,
01 including a violation of 33 U.S.C. 1319(c)(1) or 1321(b)(3) (Clean Water Act); or 02 other costs that are generally recognized as indirect costs or financing costs; and 03 (4) may not be incurred for an exploration well or seismic exploration 04 that is included in a plan of exploration or a plan of development for any unit before 05 May 14, 2003. 06 * Sec. 11. AS 43.55.025(k) is amended to read: 07 (k) Subject to the terms and conditions of this section, if a claim is filed under 08 (f)(1) of this section before January 1, 2021 [2016], a credit against the production tax 09 levied by AS 43.55.011(e) is allowed in an amount equal to five percent of an eligible 10 expenditure under this subsection incurred for seismic exploration performed before 11 July 1, 2003. To be eligible under this subsection, an expenditure must 12 (1) have been for seismic exploration that 13 (A) obtained data that the commissioner of natural resources 14 considers to be in the best interest of the state to acquire for public distribution; 15 and 16 (B) was conducted outside the boundaries of a production unit; 17 however, the amount of the expenditure that is otherwise eligible under this 18 section is reduced proportionately by the portion of the seismic exploration 19 activity that crossed into a production unit; and 20 (2) qualify under (b)(3) of this section. 21 * Sec. 12. AS 43.55.025 is amended by adding a new subsection to read: 22 (n) Except for a credit for an exploration expenditure described in (l) of this 23 section, the amount of credit for an exploration expenditure under (a) of this section 24 for an expenditure that is also a lease expenditure under AS 43.55.165 is reduced by 25 the amount necessary so that the tax benefit percentage is not more than 85 percent of 26 the exploration expenditure. Except for a credit, other than a credit for an exploration 27 expenditure described in (l) of this section, the amount of credit for an exploration 28 expenditure under (a) of this section that may not be taken because of the limitation in 29 this subsection may not be transferred, conveyed, or sold under (g) of this section. In 30 this subsection, "tax benefit percentage" means the sum of the average monthly tax 31 rate under AS 43.55.011(e) and (g) for the calendar year in which the credit is taken
01 and the percentage of the exploration expenditure, other than an exploration 02 expenditure described in (l) of this section, that may be taken as a credit under (a) of 03 this section. 04 * Sec. 13. AS 43.55 is amended by adding a new section to read: 05 Sec. 43.55.026. Production facility cost credit. (a) This section applies to a 06 credit for a qualified production facility expenditure 07 (1) incurred before the date of production of oil or gas in paying 08 quantities that is taxable under AS 43.55.011(e); 09 (2) for a lease or property that, as of December 31, 2010, is not or 10 previously had not been within a unit or produced oil or gas in paying quantities; and 11 (3) is not within the Point Thomson unit as that unit existed on the 12 effective date of this section. 13 (b) Except as limited by (g) of this section, the amount of the credit under this 14 section is equal to 50 percent of the qualified production facility expenditures that are 15 incurred after the completion of the first well drilled that discovers a pool capable of 16 commercial production from the lease or property and before the commencement of 17 production in paying quantities. The department, in consultation with the 18 (1) Alaska Oil and Gas Conservation Commission, shall determine the 19 date on which the first well drilled discovered a pool capable of production from a 20 lease or property for which the credit is taken; and 21 (2) Department of Natural Resources, shall determine the date of the 22 commencement of production in paying quantities from the lease or property for 23 which the credit is taken. 24 (c) The credit under this section may be applied against the tax due under 25 AS 43.55.011(e) during the two-year period immediately following the date of the 26 commencement of production in paying quantities. 27 (d) A qualified production facility expenditure that is taken as a credit under 28 this section may not be used as an expenditure for which a credit may be taken under 29 AS 43.20.043 or AS 43.55.023. A credit under AS 43.55.023 for a qualified 30 production facility expenditure may not be taken against the tax due under 31 AS 43.55.011(e) during the same month in which a credit is taken or purchased by the
01 department under this section. 02 (e) A credit or portion of a credit under this section may not be used to reduce 03 a taxpayer's tax liability under AS 43.55.011(e) below zero for any calendar month. A 04 person eligible for the credit under this section that does not take the credit within the 05 two-year period immediately following the date of the commencement of production 06 in paying quantities may apply to the department for a cash payment under 07 AS 43.55.028. An application under this subsection must be in a form prescribed by 08 the department and must include supporting information and documentation that the 09 department reasonably requires. The department shall grant or deny an application, or 10 grant an application as to a lesser amount than that claimed and deny it as to the 11 excess, not later than 120 days after the date the department receives the application. 12 If, based on the information then available to it, the department is reasonably satisfied 13 that the applicant is entitled to a payment, the department shall issue the cash payment 14 or a lesser amount after applying all or a portion of the credit to any outstanding 15 unpaid balance of a tax owed by the applicant under this title. 16 (f) The department shall adopt regulations describing the procedures for 17 determining the amount of the credit, record keeping, verification of the accuracy of 18 the credit claimed, and other regulations necessary to administer this section. 19 (g) The amount of credit for a qualified production facility expenditure under 20 this section for an expenditure that is also a lease expenditure under AS 43.55.165 is 21 reduced by the amount necessary so that the tax benefit percentage is not more than 85 22 percent of the qualified production facility expenditure. The amount of credit for a 23 qualified production facility expenditure under this section that may not be taken 24 because of the limitation in this subsection may not be included in an application for a 25 cash payment under (e) of this section. In this subsection, "tax benefit percentage" 26 means the sum of the average monthly tax rate under AS 43.55.011(e) and (g) for the 27 calendar year in which the credit is taken and the percentage of the qualified 28 production facility expenditure that may be taken as a credit under this section. 29 (h) In this section, 30 (1) "production facility" means a facility that is upstream from the 31 point of production and is a flow station, a gathering center, a pump station, a storage
01 tank, and a related appurtenance, or other facility that gathers, cleans, dehydrates, 02 conditions, or stores crude oil, natural gas, or associated hydrocarbons and that is 03 located on a lease or property leased from the state; 04 (2) "production in paying quantities" means production of oil and gas 05 in quantities sufficient to recover the cost of operating, although the quantity may be 06 insufficient to recover the cost of drilling; 07 (3) "qualified production facility expenditure" means an expenditure 08 for a production facility that may be recognized as a qualified capital expenditure as 09 defined in AS 43.55.023. 10 * Sec. 14. AS 43.55.028(a) is amended to read: 11 (a) The oil and gas tax credit fund is established as a separate fund of the state. 12 The purpose of the fund is to purchase transferable tax credit certificates issued under 13 AS 43.55.023 and production tax credit certificates issued under AS 43.55.025 and to 14 pay for unused credits under AS 43.55.026 that qualify for a cash payment and 15 refunds claimed under AS 43.20.046. 16 * Sec. 15. AS 43.55.028(e) is amended to read: 17 (e) The department, on the written application of a person to whom a 18 transferable tax credit certificate has been issued under AS 43.55.023(d) or former 19 AS 43.55.023(m) [(m)] or to whom a production tax credit certificate has been issued 20 under AS 43.55.025(f), may use available money in the oil and gas tax credit fund to 21 purchase, in whole or in part, the certificate if the department finds that 22 (1) the calendar year of the purchase is not earlier than the first 23 calendar year for which the credit shown on the certificate would otherwise be allowed 24 to be applied against a tax; 25 (2) [REPEALED 26 (3) REPEALED 27 (4)] the applicant does not have an outstanding liability to the state for 28 unpaid delinquent taxes under this title; 29 (3) [(5)] the applicant's total tax liability under AS 43.55.011(e), after 30 application of all available tax credits, for the calendar year in which the application is 31 made is zero;
01 (4) [(6)] the applicant's average daily production of oil and gas taxable 02 under AS 43.55.011(e) during the calendar year preceding the calendar year in which 03 the application is made was not more than 50,000 BTU equivalent barrels; and 04 (5) [(7)] the purchase is consistent with this section and regulations 05 adopted under this section. 06 * Sec. 16. AS 43.55.028(g) is amended to read: 07 (g) The department may adopt regulations to carry out the purposes of this 08 section, including standards and procedures to allocate available money among 09 applications for purchases and payments for unused credits under this chapter and 10 claims for refunds under AS 43.20.046 when the total amount of the applications for 11 purchase and claims for refund exceed the amount of available money in the fund. The 12 regulations adopted by the department may not, when allocating available money in 13 the fund under this section, distinguish an application for the purchase of a credit 14 certificate issued under former AS 43.55.023(m), a payment for an unused credit 15 that qualifies for a cash payment under AS 43.55.026, or a claim for refund under 16 AS 43.20.046. 17 * Sec. 17. AS 43.55.028 is amended by adding a new subsection to read: 18 (j) The department, on the written application of a person for the payment of 19 an unused credit that qualifies for a cash payment under AS 43.55.026 after the end of 20 the two-year period immediately following the date of the commencement of 21 production in paying quantities, may use available money in the oil and gas tax credit 22 fund to purchase, in whole or in part, the certificate if the department finds that 23 (1) the applicant does not have an outstanding liability to the state for 24 unpaid delinquent taxes under this title; 25 (2) the applicant's total tax liability under AS 43.55.011(e) for the 26 calendar year in which the application is made, after application of all available tax 27 credits, is zero; and 28 (3) the purchase is consistent with this section and regulations adopted 29 under this section. 30 * Sec. 18. AS 43.55.180(a) is amended to read: 31 (a) The department shall study
01 (1) the effects of the provisions of this chapter on oil and gas 02 exploration, development, and production in the state, on investment expenditures for 03 oil and gas exploration, development, and production in the state, on the entry of new 04 producers into the oil and gas industry in the state, on state revenue, and on tax 05 administration and compliance, giving particular attention to the tax rates provided 06 under AS 43.55.011, the tax credits provided under AS 43.55.023 - 43.55.026 07 [AS 43.55.023 - 43.55.025], and the deductions for and adjustments to lease 08 expenditures provided under AS 43.55.160 - 43.55.170; and 09 (2) the effects of the tax rates under AS 43.55.011(i) on state revenue 10 and on oil and gas exploration, development, and production on private land, and the 11 fairness of those tax rates for private landowners. 12 * Sec. 19. AS 43.55.023(m), 43.55.025(d), 43.55.025(e), and 43.55.025(m) are repealed. 13 * Sec. 20. This Act takes effect January 1, 2012.