CHAPTER 202. OIL PRODUCTION TAX

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TAX CODE

TITLE 2. STATE TAXATION

SUBTITLE I. SEVERANCE TAXES

CHAPTER 202. OIL PRODUCTION TAX

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 202.001. DEFINITIONS. In this chapter:

(1) "Carrier" means a person who owns, operates, or manages a

means of transporting oil.

(2) "First purchaser" means a person who purchases crude oil

from a producer.

(3) "Oil" means crude oil or other oil taken from the earth,

regardless of the gravity of the oil.

(4) "Producer" means a person who takes oil from the earth or

water in any manner, a person who owns, controls, manages, or

leases an oil well, or a person who owns an interest, including a

royalty interest, in oil or its value, whether the oil is

produced by the person owning the interest or by another on his

behalf by lease, contract, or any other arrangement.

(5) "Royalty interest" means an interest in mineral rights in a

producing leasehold in the state, but does not include the

interest of a person having the management and operation of a

well.

(6) "Subsequent purchaser" means a person who purchases oil from

a person other than the producer of the oil, or a person

operating a reclamation plant, topping plant, treating plant,

refinery, or processing plant.

Acts 1981, 67th Leg., p. 1736, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.002. PRODUCTION AND MEASUREMENT OF OIL. (a)

"Production" means the total gross amount of oil produced,

including royalty and other interests.

(b) The amount of production shall be measured or determined by:

(1) tank tables compiled to show 100 percent of the capacity of

the tanks without deduction for overage or losses in handling; or

(2) meter or other measuring devices that accurately determine

the amount of production.

by a tank table compiled to show less than 100 percent of the

full capacity of a tank, the amount must be raised to a basis of

100 percent.

(d) When measuring or determining the amount of production, a

reasonable deduction may be made for basic sediment and water and

a reasonable allowance may be made for correction of the

temperature to 60 degrees Fahrenheit.

(e) This section does not authorize the use of metering devices

for the measurement of oil on a well without the express

permission of the operator of the well.

Acts 1981, 67th Leg., p. 1736, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.003. AGREEMENT TO PAY TAX NOT IMPAIRED. This code does

not impair a contract in which any person has agreed to pay any

part of the tax imposed by this chapter. This code does not

relieve any person of any contractual liability.

Acts 1981, 67th Leg., p. 1737, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.004. INSPECTION OF RECORDS AND REPORTS. A person

required by this chapter to make and keep a record shall keep the

record open for inspection by the comptroller or the attorney

general at all times. Reports filed under this chapter are open

to inspection by the attorney general.

Acts 1981, 67th Leg., p. 1737, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.005. EMPLOYMENT OF AUDITORS. The comptroller may

employ auditors and supervisors to verify reports and investigate

the affairs of producers and purchasers to determine whether the

tax imposed by this chapter is being properly reported and paid.

Acts 1981, 67th Leg., p. 1737, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.006. TAXPAYER IDENTIFICATION NUMBER. (a) Except as

otherwise provided by Subsection (b), each producer must obtain a

taxpayer identification number from the comptroller.

(b) A producer whose only ownership interest in the oil is a

royalty interest must obtain a tax identification number from the

comptroller only if the producer has elected to take the

producer's share of production in kind or if the comptroller

determines that the producer's activity or interest requires that

a number be assigned to protect the state's interest in the tax

attributable to the producer.

Added by Acts 1993, 73rd Leg., ch. 587, Sec. 33, eff. Jan. 1,

1994.

SUBCHAPTER B. TAX IMPOSED

Sec. 202.051. TAX IMPOSED. There is imposed a tax on the

production of oil.

Acts 1981, 67th Leg., p. 1737, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.052. RATE OF TAX. (a) The tax imposed by this chapter

is at the rate of 4.6 percent of the market value of oil produced

in this state or 4.6 cents for each barrel of 42 standard gallons

of oil produced in this state, whichever rate results in the

greater amount of tax.

(b) For oil produced in this state from a new or expanded

enhanced recovery project that qualifies under Section 202.054 of

this code, the rate of the tax imposed by this chapter is 2.3

percent of the market value of the oil.

202.060 apply to oil produced in this state from a well that

qualifies under Section 202.056, 202.059, or 202.060, subject to

the certifications and approvals required by those sections.

Acts 1981, 67th Leg., p. 1737, ch. 389, Sec. 1, eff. Jan. 1,

1982. Amended by Acts 1989, 71st Leg., ch. 795, Sec. 1, eff.

Sept. 1, 1989; Acts 1991, 72nd Leg., ch. 604, Sec. 1, eff. Sept.

1, 1991; Acts 1993, 73rd Leg., ch. 1015, Sec. 1, eff. Sept. 1,

1993; Acts 1995, 74th Leg., ch. 989, Sec. 4, eff. Jan. 1, 1996.

Amended by:

Acts 2005, 79th Leg., Ch.

267, Sec. 11, eff. January 1, 2006.

Sec. 202.053. MARKET VALUE. The market value of oil is the

actual market value plus any bonus, premium, or other thing of

value paid for the oil or that the oil will reasonably bring if

lawfully produced.

Acts 1981, 67th Leg., p. 1737, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.054. QUALIFICATION OF OIL FROM NEW OR EXPANDED ENHANCED

RECOVERY PROJECT FOR SPECIAL TAX RATE. (a) In this section:

(1) "Active operation" means the start and continuation of a

fluid injection program for a secondary or tertiary recovery

project to enhance the displacement process in the reservoir.

(2) "Commission" means the Railroad Commission of Texas.

(3) "Enhanced recovery project" means the use of any process for

the displacement of oil from the earth other than primary

recovery and includes the use of an immiscible, miscible,

chemical, thermal, or biological process and any co-production

project.

(4) "Existing enhanced recovery project" means an enhanced

recovery project that began active operations before September 1,

1989.

(5) "Expanded enhanced recovery project" or "expansion" means

the addition of injection and producing wells, the change of

injection pattern, or other operating changes to an existing

enhanced oil recovery project that will result in the recovery of

oil that would not otherwise be recovered.

(6) "Incremental production" means the volume of oil produced by

an expanded enhanced recovery project in excess of the production

decline rate established under conditions before expansion for an

existing enhanced recovery project.

(7) "Operator" means the person responsible for the actual

physical operation of an enhanced recovery project.

(8) "Positive production response" means that the rate of oil

production from the wells affected by an enhanced recovery

project is greater than the rate that would have occurred without

the project.

(9) "Primary recovery" means the displacement of oil from the

earth into the well bore by means of the natural pressure of the

oil reservoir, including artificial lift.

(10) "Production decline rate" means the projected future oil

production from a project area as extrapolated by a method

approved by the commission.

(11) "Recovered oil tax rate" means the tax rate provided by

Section 202.052(b) of this code.

(12) "Secondary recovery project" means an enhanced recovery

project that is not a tertiary recovery project.

(13) "Tertiary recovery project" means an enhanced recovery

project using a tertiary recovery method listed in the federal

June 1979 energy regulations referred to in Section 4993,

Internal Revenue Code of 1986, or approved by the United States

secretary of the treasury for purposes of administering Section

4993, Internal Revenue Code of 1986, without regard to whether

that section remains in effect.

(14) "Co-production project" means an enhanced recovery project

in which water is permanently removed from an oil and/or gas

reservoir in an effort to lower the gas-water or oil-water

contact in the reservoir or to reduce reservoir pressure to

recover entrained hydrocarbons from the reservoir that would not

be produced by conventional primary or secondary production

methods.

(15) "Commission approved co-production project" means a

reservoir development project in which the commission has

recognized that water withdrawals from an oil or gas reservoir in

excess of specified minimum volumes will result in recovery of

additional oil and/or gas from the reservoir that would not be

produced by conventional production methods and where operators

in the field have begun to implement commission requirements to

withdraw such volumes of water and dispose of such water outside

the subject reservoir. Reservoirs potentially eligible for this

designation shall be limited to those reservoirs in which oil

and/or gas has been bypassed by water encroachment caused by

production from the reservoir and such bypassed oil and/or gas

may be produced as a result of fieldwide high-volume water

withdrawals of natural formation water.

(16) "High-volume water withdrawals" means the withdrawal of

water from a reservoir in an amount sufficient to dewater

portions of the reservoir containing oil and/or gas previously

bypassed by water encroachment.

(b) Oil produced from an enhanced recovery project other than a

co-production project qualifies for the recovered oil tax rate

if, before the project begins active operation, the commission

approves the project and designates the area to be affected by

the project. The incremental production from an expanded enhanced

recovery project other than a co-production project qualifies for

the recovered oil tax rate if, before the expansion begins, the

commission approves the expansion and designates the area to be

affected by the expansion. For a new or expanded enhanced

recovery project, other than a co-production project, for which

an application for approval under this section is filed with the

commission on or after January 1, 1994, severance tax for all oil

produced during the period from January 1, 1994, through August

31, 1995, to which the recovered tax rate is applicable, must be

paid when due at the rate provided by Section 202.052(a) of this

code. On or after January 1, 1996, the payor may apply to the

comptroller for and shall be entitled to receive a tax credit

equal to the difference between the tax paid and the tax which

would have been due at the recovered oil tax rate for all

production to which the recovered tax rate is applicable during

the period from January 1, 1994, through August 31, 1995. The tax

credit may be applied to either oil or gas severance taxes

regardless of the field from which the production originates. Oil

produced from a commission approved co-production project,

whether a new enhanced recovery project or an expanded enhanced

recovery project, qualifies for the recovered oil tax rate

following commission certification of a positive production

response without regard to whether the commission approval is

before or after the project began active operations; provided,

however, tax must be paid when due at the rate provided in

Section 202.052(a) of this code for all oil produced on or before

July 31, 1995. On or after September 1, 1995, the operator may

apply to the comptroller for a refund and shall be entitled to

receive a refund equal to the difference between the tax paid on

all oil produced from a commission approved co-production project

after commission certification of a positive production response

and the tax due at the recovered oil tax rate for all oil

produced after commission certification of a positive production

response from such co-production project. The operator of a

proposed project or a proposed expansion may apply to the

commission for approval of the project or expansion under this

section. The commission may require an applicant to provide the

commission with any relevant information required to administer

this section. If approval by the commission of a unitization

agreement under Subchapter B, Chapter 101, Natural Resources

Code, is required for purposes of carrying out the project or

expansion, the commission may not approve the project or

expansion unless it approves the unitization agreement. A person

may apply for approval of a proposed enhanced recovery project or

a proposed expansion under this subsection concurrently with an

application for approval of a unitization agreement for purposes

of carrying out the enhanced recovery project or expansion under

Section 101.011, Natural Resources Code, or with an application

for certification of the project or expansion as a tertiary

recovery project for purposes of Section 4993, Internal Revenue

Code of 1986, or may make a separate application for approval.

begins active operation on or after September 1, 1989, and to an

expansion that the commission approves on or after September 1,

1991. An application for approval under this section must be

filed on or after September 1, 1989, for a new enhanced recovery

project. An application for approval under this section must be

filed on or after September 1, 1991, for an expansion of an

existing enhanced recovery project. A project may not qualify as

an expansion if the project has qualified as a new enhanced

recovery project under this section. An application may be filed

on or after September 1, 1989, even if a separate application for

approval of the project or expansion has already been filed under

Subchapter B, Chapter 101, Natural Resources Code, or for

approval as a tertiary recovery project for purposes of Section

4993, Internal Revenue Code of 1986, if the operation of a new

project or the expansion of an existing project, other than a

co-production project, does not begin before the application for

approval under this section is approved by the commission;

provided, however, nothing herein shall require commission

approval of a co-production project prior to commencing active

operations on such project in order for such project to be

eligible for the recovered oil tax rate.

(d) An applicant for commission approval of a co-production

project shall submit a written application for approval to the

commission. Such application must be filed before January 1,

1994. The applicant shall provide the commission with any

relevant information required to administer this section,

including evidence demonstrating that the reservoir is eligible

for the designation and demonstrating the minimum volumes of

high-volume water withdrawal required to recover oil and/or gas

from the reservoir that would not be produced by conventional

production methods. A commission representative may

administratively approve the application. If the commission

representative denies administrative approval, the applicant

shall have the right to a hearing upon request.

(e) If the commission approves an enhanced recovery project or

an expansion under this section, it shall issue a certification

of approval for an approved project designating the area to be

affected by the project.

(f) The recovered oil tax rate applies only to oil produced from

a new enhanced oil recovery project, any co-production project,

or the incremental production caused by the expansion of an

existing enhanced recovery project from the area the commission

certifies to be affected by the project.

(g) Subject to the provisions of Subsections (b) and (h) of this

section, the recovered oil tax rate applies to oil on which a tax

is imposed by this chapter for the 10 years beginning the first

day of the month following the date the commission certifies

that, in the case of an enhanced recovery project including a

co-production project, a positive production response has

occurred or, in the case of an expansion, other than related to a

co-production project, incremental production has occurred, if

the application for certification is filed:

(1) not later than three years from the date the commission

approves the project if the project is designated as a new or

existing project other than a co-production project that uses a

secondary recovery process; or

(2) not later than five years from the date the commission

approves the project if the project is designated as a new or

existing project that uses a tertiary recovery process or is a

co-production project.

(h) The operator may designate the certification date, subject

to commission approval. If the commission determines that the

project has caused a positive production response or incremental

production, the commission shall certify that fact.

(i) Notwithstanding Subsection (g) of this section,

qualification for the recovered oil tax rate ends on the first

day of the first calendar month that begins on or after the 91st

day following the date of termination of the active operation of

the enhanced recovery project or of termination of an approved

expansion.

(j) If the active operation of an approved enhanced recovery

project or expansion is terminated, the person who immediately

before the termination is the operator of the project shall

notify the commission and the comptroller in writing not later

than the 30th day after the last day of active operation. Any

person who violates this subsection is liable to the state for a

civil penalty if the person pays or attempts to pay the tax

imposed by this chapter on oil from the project at the recovered

oil tax rate after qualification for that rate ends under

Subsection (g) or (i) of this section. The amount of the penalty

may not exceed the sum of:

(1) $10,000; and

(2) the difference between the amount of taxes paid or attempted

to be paid and the amount of taxes due.

(k) The attorney general may recover a penalty under Subsection

(j) of this section in a suit brought on behalf of the state.

Venue for the suit is in Travis County.

(l) The commission has broad discretion in administering this

section and shall adopt and enforce any appropriate rules or

orders that the commission finds necessary to administer this

section concerning the designation, operation, and termination of

enhanced recovery projects and expansions. The commission shall

notify the comptroller of any action taken under this subsection.

The comptroller shall have the power to establish procedures in

order to comply with this Act.

(m) Subject to the provisions of Subsection (b) of this section,

if , before the comptroller approves an application for taxation

at the recovered oil tax rate, the tax imposed by this chapter is

paid at the rate provided by Section 202.052(a) of this code on

oil that qualifies under this section for the recovered oil tax

rate, the producer or producers of the oil are entitled to a

credit against taxes imposed by this chapter in an amount equal

to the difference between the tax paid on the oil and the tax due

on the oil at the recovered oil tax rate. The credit is allocated

to each producer according to the producer's proportionate share

in the oil. To receive a credit, one or more of the producers of

the oil must apply to the comptroller for the credit not later

than the first anniversary after the date the commission

certifies that a positive production response has occurred.

(n) To qualify for the taxation of oil at the recovered oil tax

rate, a person responsible for paying the tax must apply to the

comptroller. The application must include the certification of

the commission that the project or expansion has been approved

and that the project has resulted in a positive production

response or that the expansion has resulted in incremental

production. The comptroller shall approve the application of a

person who demonstrates that the oil is eligible for taxation at

the recovered oil tax rate. The comptroller may require a person

applying for the recovered oil tax rate to provide any relevant

information in the person's monthly report and internal records

that the comptroller considers necessary to administer this

section. The commission shall notify the comptroller in writing

immediately if it determines that active operation of an approved

enhanced recovery project or an approved expansion has been

terminated or if it takes any action or discovers any information

that affects the taxation of oil at the recovered oil tax rate.

Added by Acts 1989, 71st Leg., ch. 795, Sec. 2, eff. Sept. 1,

1989. Amended by Acts 1991, 72nd Leg., ch. 604, Sec. 2, eff.

Sept. 1, 1991; Acts 1993, 73rd Leg., ch. 335, Sec. 1, 2, eff.

Jan. 1, 1994; Acts 1993, 73rd Leg., ch. 958, Sec. 2, eff. Sept.

1, 1993; Acts 1997, 75th Leg., ch. 931, Sec. 1, 2, eff. Sept. 1,

1997; Acts 2003, 78th Leg., ch. 209, Sec. 53, eff. Oct. 1, 2003.

Sec. 202.0545. TAX EXEMPTION FOR ENHANCED RECOVERY PROJECTS

USING ANTHROPOGENIC CARBON DIOXIDE. (a) Subject to the

limitations provided by this section, until the 30th anniversary

of the date that the comptroller first approves an application

for a tax rate reduction under this section, the producer of oil

recovered through an enhanced oil recovery project that qualifies

under Section 202.054 for the recovered oil tax rate provided by

Section 202.052(b) is entitled to an additional 50 percent

reduction in that tax rate if in the recovery of the oil the

enhanced oil recovery project uses carbon dioxide that:

(1) is captured from an anthropogenic source in this state;

(2) would otherwise be released into the atmosphere as

industrial emissions;

(3) is measurable at the source of capture; and

(4) is sequestered in one or more geological formations in this

state following the enhanced oil recovery process.

(b) In the event that a portion of the carbon dioxide used in

the enhanced oil recovery project is anthropogenic carbon dioxide

that satisfies the criteria of Subsection (a) and a portion of

the carbon dioxide used in the project fails to satisfy the

criteria of Subsection (a) because it is not anthropogenic, the

tax reduction provided by Subsection (a) shall be reduced to

reflect the proportion of the carbon dioxide used in the project

that satisfies the criteria of Subsection (a).

the operator must:

(1) apply to the comptroller for the reduction and include with

the application any information and documentation that the

comptroller may require; and

(2) apply for a certification from:

(A) the Railroad Commission of Texas, if carbon dioxide used in

the project is to be sequestered in an oil or natural gas

reservoir;

(B) the Texas Commission on Environmental Quality, if carbon

dioxide used in the project is to be sequestered in a geological

formation other than an oil or natural gas reservoir; or

Commission on Environmental Quality if both Paragraphs (A) and

(B) apply.

(d) An agency to which an operator applies for a certification

under Subsection (c)(2) may issue the certification only if the

agency finds that, based on substantial evidence, there is a

reasonable expectation that:

(1) at least 99 percent of the carbon dioxide sequestered as

required by Subsection (a)(4) will remain sequestered for at

least 1,000 years; and

(2) the operator's planned sequestration program will include

appropriately designed monitoring and verification measures that

will be employed for a period sufficient to demonstrate whether

the sequestration program is performing as expected.

(e) The tax rate reduction does not apply if the operator's

sequestration program or the operator's monitoring and

verification measures differ substantially from the planned

program described by Subsection (d), and the operator shall

refund the difference between the amount of the tax paid under

this section and the amount that would have been imposed in the

absence of this section.

(f) The comptroller shall approve the application if the

operator submits the certification or certifications required by

Subsection (c)(2) and if the comptroller determines that the oil

is otherwise eligible under this section.

(g) If, before the comptroller approves an application for the

tax rate reduction under this section, the tax imposed by this

chapter is paid at the rate provided by Section 202.052(a) or (b)

on oil that qualifies under this section, the producer or

producers of the oil are entitled to a credit against taxes

imposed by this chapter in an amount equal to the difference

between the tax paid on the oil and the tax due on the oil after

the rate reduction under this section is applied. The credit is

allowed to each producer according to the producer's

proportionate share in the oil. To receive a credit, one or more

of the producers of the oil must apply to the comptroller for the

credit not later than the first anniversary of the date the oil

is produced.

(h) The comptroller, the Railroad Commission of Texas, and the

Texas Commission on Environmental Quality may adopt rules and

establish procedures to implement and administer this section.

Added by Acts 2007, 80th Leg., R.S., Ch.

1277, Sec. 9, eff. September 1, 2007.

Amended by:

Acts 2009, 81st Leg., R.S., Ch.

1109, Sec. 5, eff. September 1, 2009.

Sec. 202.056. EXEMPTION FOR OIL AND GAS FROM WELLS PREVIOUSLY

INACTIVE. (a) In this section:

(1) "Commission" means the Railroad Commission of Texas.

(2) "Hydrocarbons" means any oil or gas produced from a well,

including hydrocarbon production.

(3) "Three-year inactive well" means any well that has not

produced in more than one month in the three years prior to the

date of application for severance tax exemption under this

section.

(4) "Two-year inactive well" means a well that has not produced

oil or gas in more than one month in the two years preceding the

date of application for severance tax exemption under this

section.

(b) Hydrocarbons produced from a well qualify for a 10-year

severance tax exemption if the commission designates the well as

a three-year inactive well or a two-year inactive well. The

commission may require an applicant to provide the commission

with any relevant information required to administer this

section. The commission may require additional well tests to

determine well capability as it deems necessary. The commission

shall notify the comptroller in writing immediately if it

determines that the operation of the three-year inactive well or

two-year inactive well has been terminated or if it discovers any

information that affects the taxation of the production from the

designated well.

under this section, it shall issue a certificate designating the

well as a three-year inactive well as defined by Subsection

(a)(3) of this section. The commission may not designate a

three-year inactive well under this section after February 29,

1996. If the commission designates a two-year inactive well under

this section, it shall issue a certificate designating the well

as a two-year inactive well as defined by Subsection (a)(4) of

this section. The commission may not designate a two-year

inactive well under this section after February 28, 2010.

(d) An application for three-year inactive well certification

shall be made during the period of September 1, 1993, through

August 31, 1995, to qualify for the tax exemption under this

section. An application for two-year inactive well certification

shall be made during the period September 1, 1997, through August

31, 2009, to qualify for the tax exemption under this section.

Hydrocarbons sold after the date of certification are eligible

for the tax exemption.

(e) The commission may revoke a certificate if information

indicates that a certified well was not a three-year inactive

well or a two-year inactive well, as appropriate, or if other

lease production is credited to the certified well. Upon notice

to the operator from the commission that the certificate for tax

exemption under this section has been revoked, the tax exemption

may not be applied to hydrocarbons sold from that well from the

date of revocation.

(f) The commission shall adopt all necessary rules to administer

this section.

(g) To qualify for the tax exemption provided by this section,

the person responsible for paying the tax must apply to the

comptroller. The comptroller shall approve the application of a

person who demonstrates that the hydrocarbon production is

eligible for a tax exemption. The comptroller may require a

person applying for the tax exemption to provide any relevant

information necessary to administer this section. The comptroller

shall have the power to establish procedures in order to comply

with this section.

(h) If the tax is paid at the full rate provided by Section

201.052(a), 201.052(b), 202.052(a), or 202.052(b) before the

comptroller approves an application for an exemption provided for

in this chapter, the operator is entitled to a credit against

taxes imposed by this chapter in an amount equal to the tax paid.

To receive a credit, the operator must apply to the comptroller

for the credit before the expiration of the applicable period for

filing a tax refund claim under Section 111.104.

(i) Penalties

(1) Any person who makes or subscribes any application, report,

or other document and submits it to the commission to form the

basis for an application for a tax exemption under this section,

knowing that the application, report, or other document is false

or untrue in a material fact, may be subject to the penalties

imposed by Chapters 85 and 91, Natural Resources Code.

(2) Upon notice from the commission that the certification for a

three-year inactive well or a two-year inactive well has been

revoked, the tax exemption shall not apply to oil or gas

production sold after the date of notification. Any person who

violates this subsection is liable to the state for a civil

penalty if the person applies or attempts to apply the tax

exemption allowed by this chapter after the certification for a

three-year inactive well or a two-year inactive well is revoked.

The amount of the penalty may not exceed the sum of:

(A) $10,000; and

(B) the difference between the amount of taxes paid or attempted

to be paid and the amount of taxes due.

(3) The attorney general may recover a penalty under Subdivision

(2) of this subsection in a suit brought on behalf of the state.

Venue for the suit is in Travis County.

Added by Acts 1993, 73rd Leg., ch. 1015, Sec. 3, eff. Sept. 1,

1993. Amended by Acts 1997, 75th Leg., ch. 208, Sec. 1 to 3, eff.

Sept. 1, 1997; Acts 1999, 76th Leg., ch. 365, Sec. 2, eff. Aug.

30, 1999; Acts 1999, 76th Leg., ch. 893, Sec. 1, eff. June 18,

1999.

Sec. 202.057. TAX CREDIT FOR INCREMENTAL PRODUCTION TECHNIQUES.

(a) In this section:

(1) "Baseline production" means a lease's average monthly

production during the four highest months of production in the

time period from January 1, 1996, through December 31, 1996.

(2) "Commission" means the Railroad Commission of Texas.

(3) "Incremental production" means production from a qualifying

lease in excess of the baseline production.

(4) "Incremental production technique" means any secondary or

tertiary production enhancement technique. For wells in primary

production, the use of incremental production techniques means

that an expenditure of at least $5,000 must have been made to

cause increased production. Operators must certify to the

commission that such expenditure has been made to qualify for the

tax exemption. The incremental production techniques listed in

this subdivision must cause incremental production from an

existing oil lease or from a newly drilled single-completion well

on an existing lease.

(5) "Incremental ratio" means the amount of a qualifying lease's

average monthly incremental production during the four-month

period used to meet the definition of a qualifying lease divided

by its average monthly total production during the same

four-month period.

(6) "Qualifying lease" means a commission-designated oil lease

whose production during the four-month period used in computing

the baseline is no more than seven barrels of oil equivalents per

day per well, excluding gas flared pursuant to the rules of the

commission, and which has shown incremental production for four

of five consecutive months on or after September 1, 1997, and

after performing an incremental production technique within the

lease. For purposes of qualifying a lease, production per well

per day is measured by dividing the sum of lease production

during the four highest months of production in the baseline

period by the sum of the number of well-days, where a well-day is

one well producing for one day.

(7) "Qualified incremental production" means the lease's monthly

total production multiplied by the incremental ratio.

(b) An operator of a qualifying lease is entitled to a 50

percent tax exemption on that lease's qualified incremental

production for five years provided that:

(1) the incremental production required to define a qualifying

lease occurred after September 1, 1997, and before December 31,

1998;

(2) the operator of a qualifying lease applies to the commission

for a determination of a lease's incremental ratio before

February 11, 1999; and

(3) the operator provides to the comptroller a

commission-certified incremental ratio.

reaches $25 per barrel, adjusted to 1997 dollars, for three

consecutive months, the tax credit under this section shall be

suspended until the price drops below $25 per barrel, adjusted to

1997 dollars, for three consecutive months.

(d) If the tax is paid at the full rate provided by Section

201.052(a) or (b) or Section 202.052(a) or (b) before the

comptroller approves an application for an exemption provided in

this chapter, the operator is entitled to a credit against taxes

imposed by this chapter in an amount equal to 50 percent of the

tax paid on the incremental production. To receive the credit,

the operator must apply to the comptroller for the credit not

later than the first anniversary after the date the commission

certifies the incremental ratio for a qualifying lease.

(e) The commission may enact rules necessary to administer the

provisions of this section.

Added by Acts 1997, 75th Leg., ch. 1060, Sec. 2, eff. Sept. 1,

1997.

Subsec. (h) of this section provided for the expiration of the

section on Sept. 1, 2007. Subsec. (h) was repealed by Acts 2007,

80th Leg., R.S., Ch.

911, Sec. 4, which was effective January 1, 2008, after the

section had expired.

Sec. 202.058. CREDITS FOR QUALIFYING LOW-PRODUCING OIL LEASES.

(a) In this section:

(1) "Commission" means the Railroad Commission of Texas.

(2) "Qualifying low-producing oil lease" means a well classified

as an oil well that is part of a lease whose production during a

90-day period is less than:

(A) 15 barrels of oil per day of production; or

(B) five percent recoverable oil per barrel of produced water.

(b) For purposes of qualifying a lease, production per well per

day is determined by computing the average daily per well

production from the lease using the monthly lease production

report made to the commission. For purposes of qualifying a

lease, production per well per day is measured by dividing the

sum of lease production during the three-month period by the sum

of the number of well-days, where a well-day is one well

producing for one day. The operator of a lease that is eligible

for a credit under this section only on the basis of Subsection

(a)(2)(B) must pay to the comptroller a filing fee of $100 before

the comptroller may authorize the credit.

taxable price of oil, adjusted to 2005 dollars, during the

previous three months based on various price indices available to

producers, including the reported Texas Panhandle Spot Price,

West Texas Intermediate Crude Spot Price, New York Mercantile

Exchange, or other spot prices, as applicable. The comptroller

shall publish certifications under this subsection in the Texas

(d) An operator of a qualifying low-producing lease is entitled

to a 25 percent credit on the tax otherwise due on oil produced

from that lease during a month if the average taxable price of

oil certified by the comptroller under Subsection (c) for the

previous three-month period is more than $25 per barrel but not

more than $30 per barrel.

(e) An operator of a qualifying low-producing lease is entitled

to a 50 percent credit on the tax otherwise due on oil produced

from that lease during a month if the average taxable price of

oil certified by the comptroller under Subsection (c) for the

previous three-month period is more than $22 per barrel but not

more than $25 per barrel.

(f) An operator of a qualifying low-producing lease is entitled

to a 100 percent credit on the tax otherwise due on oil produced

from that lease during a month if the average taxable price of

oil certified by the comptroller under Subsection (c) for the

previous three-month period is not more than $22 per barrel.

(g) If the tax is paid on oil at the full rate provided by

Section 202.052, the person paying the tax is entitled to a

credit against taxes imposed by this chapter or Chapter 201 on

the amount overpaid. To receive the credit, the person must

apply to the comptroller for the credit not later than the

expiration of the applicable period for filing a tax refund under

Section 111.104.

Subsec. (h) was repealed by Acts 2007, 80th Leg., R.S., Ch.

911, Sec. 4. The effective date of the repeal was January 1,

2008, which was after the expiration of the section.

(h) This section expires September 1, 2007.

(h) Repealed by Acts 2007, 80th Leg., R.S., Ch. 911, Sec. 4,

eff. January 1, 2008.

Added by Acts 2005, 79th Leg., Ch.

267, Sec. 12, eff. September 1, 2005.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

911, Sec. 4, eff. January 1, 2008.

Sec. 202.059. EXEMPTION FOR HYDROCARBONS FROM TERRA WELLS. (a)

Hydrocarbons produced from a well subject to an agreement under

Chapter 93, Natural Resources Code, and under a license issued

under that chapter qualify for an exemption from the taxes

imposed by this chapter and Chapter 201 if the comptroller

approves the tax exemption under Subsection (g).

(b) Hydrocarbons produced from a well formerly subject to an

agreement under Chapter 93, Natural Resources Code, and a license

issued under that chapter resuming production after participation

in TERRA for two years qualify for an exemption from the taxes

imposed by this chapter and Chapter 201 if the comptroller

approves the tax exemption under Subsection (g).

exemption or an application may be made to the commission for

certification under this section. The commission may require an

applicant to provide the commission with any relevant information

required to administer this section. The commission shall issue a

certificate to each operator of the well. The certificate must:

(1) include identification of the well; and

(2) state the date on which the tax exemption takes effect,

subject to the comptroller's approval of the exemption under

Subsection (g).

(d) The commission shall furnish to the comptroller a copy of a

certificate of exemption for each well qualifying under this

section.

(e) The commission may revoke a certificate for a tax exemption

if information indicates that a well was not eligible for that

designation at the time of certification or if a license issued

under Chapter 93, Natural Resources Code, is revoked by the

commission. The commission shall notify the operator and the

comptroller that a certificate has been revoked. A tax exemption

granted under this section is automatically revoked on the date

the certificate is revoked, and hydrocarbons produced from the

well after the date of revocation are not eligible for the tax

exemption.

(f) The commission may adopt and enforce any rules or orders

that the commission finds necessary to administer this section.

(g) To qualify for the tax exemption, the person responsible for

paying the tax must apply to the comptroller for the exemption

and include with the application the certificate issued by the

commission under Subsection (c). The comptroller shall approve

the application of a person if the hydrocarbons are eligible for

the tax exemption. The comptroller may require a person applying

for the tax exemption to provide any relevant information

necessary to administer this section. The comptroller may

establish procedures to comply with this subsection and

Subsection (h).

(h) If the tax is paid at the full rate provided by this chapter

and Chapter 201 on hydrocarbons produced on or after the

effective date of the tax exemption but before the date the

comptroller approves an application for the tax exemption, the

operator is entitled to a credit on taxes due under Chapter 201

or this chapter in the amount equal to the tax paid during that

period. To receive a credit, the operator must apply to the

comptroller for the credit not later than one year after the date

the commission certifies the well for a tax exemption.

(i) A person is subject to the penalties that may be imposed

under Chapters 85 and 91, Natural Resources Code, if the person

makes and submits to the commission or comptroller an

application, report, or other document used or intended to be

used for a certification, tax exemption, or tax credit under this

section and the person knows that the application, report, or

other document contains a false or untrue material fact.

(j) A person is liable to the state for a civil penalty if the

person, after receiving notice from the commission that the

person's tax exemption certificate for a TERRA well or a former

TERRA well has been revoked, applies or attempts to apply for a

tax exemption for hydrocarbons produced from the well under the

revoked certificate. The amount of the penalty may not exceed the

sum of:

(1) $10,000; and

(2) the difference between the amount of taxes paid or attempted

to be paid and the amount of taxes due.

(k) The attorney general may recover a penalty under Subsection

(j) in a suit brought on behalf of the state. Venue for the suit

is in Travis County.

(l) In this section:

(1) "Commission" means the Railroad Commission of Texas.

(2) "Hydrocarbons" means any oil, gas, condensate, and other

liquid hydrocarbons produced from a well.

(3) "TERRA" means the Texas Experimental Research and Recovery

Activity under Chapter 93, Natural Resources Code.

Added by Acts 1995, 74th Leg., ch. 989, Sec. 5, eff. Jan. 1,

1996.

Sec. 202.060. EXEMPTION FOR OIL AND GAS FROM REACTIVATED

ORPHANED WELLS. (a) In this section:

(1) "Commission" means the Railroad Commission of Texas.

(2) "Orphaned well" has the meaning assigned by Section 89.047,

Natural Resources Code.

(b) The commission shall issue a certificate to a person who is

designated by the commission under Section 89.047, Natural

Resources Code, as the operator of an orphaned well. The

certificate must identify the operator to whom and the well for

which the certificate is issued.

certificate qualify for a severance tax exemption.

(d) The commission shall adopt all rules necessary to administer

this section.

(e) To qualify for the tax exemption provided by this section,

the person responsible for paying the tax must apply to the

comptroller. The application must include a copy of the

certificate issued by the commission. The comptroller shall

approve the application if the person demonstrates that the

hydrocarbon production is eligible for a tax exemption. The

comptroller may require a person applying for the tax exemption

to provide any relevant information necessary to administer this

section. The comptroller may establish procedures to comply with

this section.

(f) The exemption takes effect on the first day of the month

following the month in which the comptroller approves the

application.

(g) If the person to whom the certificate is issued ceases to be

the operator of the well as shown by the records of the

commission, the commission shall notify the comptroller. The

exemption expires on the date the notice is received.

(h) A person who makes or subscribes an application, report, or

other document and submits it to the commission to form the basis

for an application for a tax exemption under this section,

knowing that the application, report, or other document is untrue

in a material fact, is subject to the penalties imposed by

Chapters 85 and 91, Natural Resources Code.

(i) A person is liable to the state for a civil penalty if the

person applies or attempts to apply the tax exemption authorized

by this section for a well after the person to whom the

certificate for the well was issued ceases to be the operator of

the well as shown by the records of the commission. The amount

of the penalty may not exceed the sum of:

(1) $10,000; and

(2) the difference between the amount of taxes paid or attempted

to be paid and the amount of taxes due.

(j) The attorney general may recover a penalty under Subsection

(i) in a suit brought on behalf of the state. Venue for the suit

is in Travis County.

Added by Acts 2005, 79th Leg., Ch.

267, Sec. 12, eff. January 1, 2006.

Sec. 202.061. TAX CREDIT FOR ENHANCED EFFICIENCY EQUIPMENT. (a)

In this section:

(1) "Enhanced efficiency equipment" means equipment used in the

production of oil that reduces the energy used to produce a

barrel of fluid by 10 percent or more when compared to commonly

available alternative equipment. The term does not include a

motor or downhole pump. Equipment does not qualify as enhanced

efficiency equipment unless an institution of higher education

approved by the comptroller that is located in this state and

that has an accredited petroleum engineering program evaluated

the equipment and determined that the equipment does produce the

required energy reduction.

(2) "Marginal well" means an oil well that produces 10 barrels

of oil or less per day on average during a month.

(b) The taxpayer responsible for the payment of severance taxes

on the production from a marginal well in this state on which

enhanced efficiency equipment is installed and used is entitled

to a credit in an amount equal to 10 percent of the cost of the

equipment, provided that:

(1) the cumulative total of all severance tax credits authorized

by this section may not exceed $1,000 for any marginal well;

(2) the enhanced efficiency equipment installed in a qualifying

marginal well must have been purchased and installed not earlier

than September 1, 2005, or later than September 1, 2013;

(3) the taxpayer must file an application with the comptroller

for the credit and must demonstrate to the comptroller that the

enhanced efficiency equipment has been purchased and installed in

the marginal well within the period prescribed by Subdivision

(2);

(4) the number of applications the comptroller may approve each

state fiscal year may not exceed a number equal to one percent of

the producing marginal wells in this state on September 1 of that

state fiscal year, as determined by the comptroller; and

(5) the manufacturer of the enhanced efficiency equipment must

obtain an evaluation of the product under Subsection (a).

credit is used.

Added by Acts 2005, 79th Leg., Ch.

267, Sec. 12, eff. September 1, 2005.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

931, Sec. 19, eff. September 1, 2007.

Sec. 202.063. EXEMPTION OF OIL INCIDENTALLY PRODUCED IN

ASSOCIATION WITH THE PRODUCTION OF GEOTHERMAL ENERGY. Oil

incidentally produced in association with the production of

geothermal energy is not subject to the tax imposed by this

chapter.

Added by Acts 2009, 81st Leg., R.S., Ch.

1036, Sec. 2, eff. September 1, 2009.

SUBCHAPTER C. RECORDS

Sec. 202.101. PRODUCER'S RECORDS. A producer shall keep

accurate records in the state. The records must show:

(1) the counties in which the producer produces oil;

(2) the names of the leases from which the producer produces

oil;

(3) the total number of barrels of oil produced from each lease;

(4) for each sale or delivery to a first purchaser, the name and

address of the first purchaser, the number of barrels sold or

delivered, and the price received for the oil;

(5) the amount and disposition of oil refined, processed, or

used on the lease where it is produced;

(6) the location and number of barrels in storage that the

producer owns and has not sold; and

(7) the name and address of each pipeline or refinery that is

storing oil that the producer has not sold.

Acts 1981, 67th Leg., p. 1737, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.102. FIRST PURCHASER'S RECORDS. A first purchaser

shall keep accurate records in the state. The records must show:

(1) the name and address of each producer from which the first

purchaser buys oil;

(2) for each producer, the counties where the oil is produced;

(3) for each producer, the name of the lease from which the oil

is produced;

(4) the number of barrels of oil purchased from each producer

and the price paid each producer for the oil;

(5) the number of barrels purchased and used, refined, or

processed by the first purchaser; and

(6) for each sale to a subsequent purchaser, the name and

address of the subsequent purchaser, the number of barrels sold,

and the price received for the oil.

Acts 1981, 67th Leg., p. 1738, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.103. SUBSEQUENT PURCHASER'S RECORDS. A subsequent

purchaser shall keep accurate records in the state. The records

must show:

(1) the name and address of each person who sells oil to the

subsequent purchaser, the number of barrels sold, the price paid

to each seller, and the date of each sale;

(2) the disposition of all oil purchased by the subsequent

purchaser;

(3) the number of barrels of oil used, refined, or processed by

the subsequent purchaser; and

(4) the name and address of each person who buys oil from the

subsequent purchaser, the number of barrels sold or delivered to

each buyer, the price received for the oil from each buyer, and

the date of the sale or delivery.

Acts 1981, 67th Leg., p. 1738, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.104. ROYALTY OWNER'S RECORDS. The owner of a royalty

interest shall keep:

(1) a record of all money received as royalty from each

producing leasehold in the state; and

(2) a copy of all settlement sheets furnished by a purchaser or

operator or other statement showing the number of barrels of oil

for which a royalty was received and the amount of tax deducted.

Acts 1981, 67th Leg., p. 1738, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.105. CARRIER'S RECORDS. A carrier shall keep accurate

monthly records of oil the carrier transports for hire, for

itself or for its owners. The records shall be kept within the

state and must show, for each shipment:

(1) the date the oil was received;

(2) the number of barrels of oil received;

(3) the person from whom the oil was received;

(4) the point of delivery;

(5) the person to whom the oil was delivered; and

(6) the manner of transportation.

Acts 1981, 67th Leg., p. 1738, ch. 389, Sec. 1, eff. Jan. 1,

1982.

SUBCHAPTER D. PAYMENTS

Sec. 202.151. TAX DUE. The tax imposed by this chapter is due

at the office of the comptroller on the 25th day of each calendar

month for oil produced during the preceding calendar month.

Acts 1981, 67th Leg., p. 1739, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.152. PAYMENT OF TAX. The tax imposed by this chapter

must be paid by legal tender or cashier's check payable to the

comptroller.

Acts 1981, 67th Leg., p. 1739, ch. 389, Sec. 1, eff. Jan. 1,

1982. Amended by Acts 1997, 75th Leg., ch. 1423, Sec. 19.121,

eff. Sept. 1, 1997.

Sec. 202.153. FIRST PURCHASER TO PAY TAX. (a) A first

purchaser shall pay the tax imposed by this chapter on oil that

the first purchaser purchases from a producer and takes delivery

on the premises where the oil is produced.

(b) A first purchaser shall withhold from payments to the

producer the amount of tax that the first purchaser is required

by Subsection (a) of this section to pay. This subsection does

not affect a lease or contract between the state or a political

subdivision of the state and a producer.

Acts 1981, 67th Leg., p. 1739, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.154. PRODUCER TO PAY TAX ON OIL NOT SOLD. If the

producer does not sell oil produced in the same month it is

produced, the producer shall pay the tax imposed by this chapter

as if the oil were sold that month. In such a case, the working

interest operator may pay the tax and deduct it from the interest

of other interest holders.

Acts 1981, 67th Leg., p. 1739, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.155. PURCHASER TO PAY TAX ON OIL FROM PROPERTY UNDER

LEGAL CONSTRAINT. (a) A purchaser shall pay the tax imposed by

this chapter on oil purchased from property in bankruptcy,

receivership, covered by an assignment, or subject to a legal

proceeding.

(b) The purchaser shall withhold the amount of tax required to

be paid by Subsection (a) of this section from payments to the

producer, trustee, assignee, or other person claiming the

payments and from payments the purchaser impounds or places in

escrow.

required by this section to any claimant of payments for the

purchase of oil.

Acts 1981, 67th Leg., p. 1739, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.156. TAX BORNE RATABLY. The tax shall be borne ratably

by all interested parties, including royalty interests. Producers

or purchasers of oil, or both, are authorized and required to

withhold from any payment due interested parties the

proportionate amount of tax due.

Acts 1981, 67th Leg., p. 1739, ch. 389, Sec. 1, eff. Jan. 1,

1982.

SUBCHAPTER E. REPORTS

Sec. 202.201. PRODUCER'S REPORT. (a) A producer authorized by

the comptroller to remit the tax due shall file with the

comptroller, on or before the 25th day of each calendar month,

the report under this subsection and, as applicable, the report

under Subsection (d) showing the total oil produced, used, lost

or stolen, or possessed and otherwise unaccounted for by the

producer during the preceding calendar month. The report under

this subsection must show:

(1) the number of barrels of oil produced from each lease;

(2) each county in which each lease from which oil was produced

is located;

(3) the name, address, and taxpayer identification number

assigned by the comptroller of each first purchaser of oil and

for each the amount of oil purchased from each lease;

(4) the payment received for the oil from each first purchaser

from each lease from which oil was produced;

(5) the name and lease identification number of each lease from

which the oil was produced; and

(6) other information the comptroller may reasonably require.

(b) If the report the producer is required to file shows

additional tax due, the producer must pay the additional tax when

he files the report.

the tax due under Section 202.153 is not required to file a

report on the oil sold.

(d) A producer shall file a crude oil special tax report with

the comptroller and pay the applicable tax imposed under this

chapter if any oil has been used, lost or stolen, or possessed

and otherwise unaccounted for by the producer after it has been

produced and measured. The producer must file the report on or

before the 25th day of the month following the month in which the

oil is used, lost or stolen, or possessed and otherwise

unaccounted for. The report must show:

(1) the total number of barrels of oil used, lost or stolen, or

possessed and otherwise unaccounted for by the producer;

(2) where the oil was used, lost or stolen, or possessed and

otherwise unaccounted for; and

(3) other information the comptroller may reasonably require.

(e) A producer that is no longer in business shall notify the

comptroller of this fact on or before the 25th day of the first

month following the producer's last day of business.

Acts 1981, 67th Leg., p. 1740, ch. 389, Sec. 1, eff. Jan. 1,

1982. Amended by Acts 1983, 68th Leg., p. 1375, ch. 284, Sec. 2,

eff. Sept. 1, 1983; Acts 1993, 73rd Leg., ch. 587, Sec. 34, eff.

Jan. 1, 1994; Acts 1997, 75th Leg., ch. 1040, Sec. 55, eff. Jan.

1, 1998; Acts 1999, 76th Leg., ch. 1183, Sec. 4, eff. Sept. 1,

2001.

Sec. 202.202. FIRST PURCHASER'S REPORT. (a) On or before the

25th day of each calendar month, each first purchaser or his

authorized agent shall file a report with the comptroller. The

report must contain the following information concerning oil

purchased from a producer during the preceding calendar month:

(1) the number of barrels of oil purchased from each lease for

each producer;

(2) the amount paid to each producer for each lease from which

oil was purchased;

(3) the name and address of each producer;

(4) each county in which each lease from which the purchased oil

was produced is located;

(5) the name and lease identification number of each lease from

which the purchased oil was produced; and

(6) other information the comptroller may reasonably require.

(b) If the report the first purchaser is required to file shows

additional tax due, the first purchaser must pay the additional

tax when he files the report.

Acts 1981, 67th Leg., p. 1740, ch. 389, Sec. 1, eff. Jan. 1,

1982. Amended by Acts 1983, 68th Leg., p. 1376, ch. 284, Sec. 3,

eff. Sept. 1, 1983; Acts 1997, 75th Leg., ch. 1040, Sec. 56, eff.

Jan. 1, 1998; Acts 1999, 76th Leg., ch. 1183, Sec. 5, eff. Sept.

1, 2001.

Sec. 202.204. REPORTS OF CARRIER. A carrier shall provide

information and file reports on the movements of oil if requested

by the comptroller as often as required by the comptroller.

Acts 1981, 67th Leg., p. 1740, ch. 389, Sec. 1, eff. Jan. 1,

1982.

Sec. 202.205. TRANSFER OF OWNERSHIP. (a) If an oil-producing

lease is transferred, or is to be transferred, the producer

transferring the lease shall note the name and address of the

producer acquiring the lease and the date of the transfer on the

last report covering the lease that he is required by Section

202.201 of this code to file.

(b) If an oil-producing lease is transferred, the producer

acquiring the lease shall note the date of the transfer and the

name and address of the person from whom the lease was acquired

on the first report covering the lease that he is required by

Secti

State Codes and Statutes

State Codes and Statutes

State Codes and Statutes

State Codes and Statutes

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