85R2759 TJB-D     By: Darby H.B. No. 2621       A BILL TO BE ENTITLED   AN ACT   relating to state and local tax incentives for certain enhanced oil   recovery projects.          BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:          SECTION 1.  Subtitle B, Title 3, Natural Resources Code, is   amended by adding Chapter 93 to read as follows:   CHAPTER 93. ENHANCED OIL RECOVERY REINVESTMENT ZONES   SUBCHAPTER A. GENERAL PROVISIONS          Sec. 93.0001.  DEFINITIONS. In this chapter:                (1)  "Active operation" means the start and   continuation of an injection program for a tertiary recovery   project to enhance the displacement process in a reservoir.                (2)  "Commission" means the Railroad Commission of   Texas.                (3)  "Common source of supply" means a common reservoir   as defined by Section 86.002.                (4)  "Enhanced recovery reinvestment zone" means an   enhanced recovery reinvestment zone designated by the commission   under Subchapter B.                (5)  "Operator" means the person responsible for the   actual physical operation of a tertiary recovery project.                (6)  "Payout" means the point at which all costs of   leasing, exploring, drilling, and operating have been recovered   from production of the field as defined by contract.                (7)  "Positive production response" means that the rate   of oil production from the wells affected by a tertiary recovery   project is greater than the rate that would have occurred without   the project.                (8)  "Tertiary recovery method" means 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for   purposes of administering Section 4993, Internal Revenue Code of   1986, immediately before that section was repealed.                (9)  "Tertiary recovery project" means the use of any   process for the displacement of oil from the earth using a tertiary   recovery method, including the use of an immiscible, miscible,   chemical, thermal, or biological process.   SUBCHAPTER B. DESIGNATION OF ENHANCED RECOVERY REINVESTMENT ZONE          Sec. 93.0051.  ELIGIBILITY OF AREA FOR DESIGNATION AS   REINVESTMENT ZONE. An area is eligible to be designated as an   enhanced recovery reinvestment zone if:                (1)  the area comprises a single field:                      (A)  identified through geologic studies on file   with the Bureau of Economic Geology or the United States Department   of Energy; and                      (B)  that encompasses a Cenozoic Era common source   of supply;                (2)  a person is ready to begin active operations of a   tertiary recovery project in the area;                (3)  the single field is projected to have a positive   production response as the result of active operations of the   tertiary recovery project not later than the second anniversary of   the date the commission designates the area as an enhanced recovery   reinvestment zone; and                (4)  the designation of the area will be reasonably   likely to encourage development or redevelopment and improvement of   property in the reinvestment zone.          Sec. 93.0052.  APPLICATION FOR DESIGNATION OF REINVESTMENT   ZONE, OPERATOR OF RECORD, AND TERTIARY RECOVERY PROJECT.  (a)  A   person may file an application with the commission requesting the   commission to designate:                (1)  an area that meets the eligibility requirements of   Section 93.0051 as an enhanced recovery reinvestment zone;                (2)  the person as the operator of record of the   tertiary recovery project for the reinvestment zone; and                (3)  the tertiary recovery project located in the   reinvestment zone and operated by the person as the tertiary   recovery project for the reinvestment zone.          (b)  The person must submit the application on a form   prescribed by the commission. The person must submit with the   application any information required by the commission to assist   the commission in making each designation described by Subsection   (a).          (c)  The commission by rule shall prescribe the form of the   application described by this section.          Sec. 93.0053.  DESIGNATION OF REINVESTMENT ZONE, OPERATOR OF   RECORD, AND TERTIARY RECOVERY PROJECT.  (a)  The commission by order   may designate:                (1)  an area as an enhanced recovery reinvestment zone   if:                      (A)  a person files an application under Section   93.0052; and                      (B)  the commission finds that the area meets the   eligibility requirements prescribed by Section 93.0051;                (2)  the person that submitted the application as the   operator of record of the tertiary recovery project for the   reinvestment zone; and                (3)  the tertiary recovery project located in the   reinvestment zone and operated by the person as the tertiary   recovery project for the reinvestment zone.          (b)  An order designating an area as an enhanced recovery   reinvestment zone must:                (1)  make each designation described by Subsection (a);                (2)  describe the boundaries of the reinvestment zone   with sufficient definiteness to identify with ordinary and   reasonable certainty the area included in the reinvestment zone;                (3)  contain findings that:                      (A)  the designation of the reinvestment zone will   be reasonably likely to encourage development or redevelopment and   improvement of property in the reinvestment zone; and                      (B)  the area meets the eligibility requirements   prescribed by Section 93.0051; and                (4)  include any other information the commission   considers necessary to administer the designations made under this   section.          (c)  The commission may not issue an order under this section   until the commission has conducted a public hearing on the   designations at which members of the public are given the   opportunity to be heard.          Sec. 93.0054.  TRANSFER OF DESIGNATION AS OPERATOR OF   RECORD. (a)  The designation of a person as an operator of record   under Section 93.0053 may be transferred to another person only if   the transfer is approved by written order of the commission.          (b)  If the commission approves the transfer of a designation   under this section, the commission must by order designate the   person to which the designation is transferred as the operator of   record for the applicable enhanced recovery reinvestment zone.          Sec. 93.0055.  CERTIFICATION OF DESIGNATIONS TO   COMPTROLLER. (a)  The commission shall certify to the comptroller   each designation made by the commission under Sections 93.0053 and   93.0054.          (b)  The commission must make each certification to the   comptroller in writing not later than the seventh day after the date   the commission issues the order making the designation.          Sec. 93.0056.  CENTRAL REGISTRY OF DESIGNATIONS. The   commission shall maintain a central registry that includes for each   enhanced recovery reinvestment zone designated by the commission:                (1)  the name of the reinvestment zone;                (2)  the name of the operator of record for the   reinvestment zone;                (3)  the name of the tertiary recovery project for the   reinvestment zone;                 (4)  each political subdivision that has adopted a tax   benefit under Subchapter C that may be claimed by the operator of   record in the reinvestment zone; and                (5)  any other information the commission considers   relevant and important.           Sec. 93.0057.  EXPIRATION OF DESIGNATIONS. (a)  Except as   provided by Subsection (b), a designation made by the commission   under Section 93.0053 or 93.0054 related to an enhanced recovery   reinvestment zone expires on the earlier of:                (1)  the 10th anniversary of the date the commission   adopts the order designating the reinvestment zone; or                (2)  the date that payout occurs regarding the field   located in the reinvestment zone.          (b)  A designation of an operator of record that is   transferred as authorized by Section 93.0054 expires on the date   the commission adopts the order approving the transfer.          Sec. 93.0058.  DESIGNATIONS DO NOT CONSTITUTE UNITIZATION.   The commission's designation of an enhanced recovery reinvestment   zone, operator of record for the reinvestment zone, or tertiary   recovery project for the reinvestment zone do not constitute   unitization of the field located in the reinvestment zone.          Sec. 93.0059.  COMMISSION RULES. The commission shall adopt   rules necessary to implement and administer this subchapter.  The   commission shall notify the comptroller of any rules adopted under   this section.   SUBCHAPTER C. TAX TREATMENT IN ENHANCED RECOVERY REINVESTMENT ZONE          Sec. 93.0101.  LIMITATION ON APPRAISED VALUE OF ELIGIBLE   PROPERTY INTEREST. (a)  In this section:                (1)  "Eligible property interest" means a property   interest for which a person is entitled to a limitation on appraised   value under Subsection (b).                (2)  "Eligible real property" means oil in place that   is part of the common source of supply of a tertiary recovery   project designated by the commission under Subchapter B.                (3)  "Hold-harmless appraised value" means the   appraised value of the undivided or fractional interest in oil in   place in an area on January 1 of the tax year in which the area is   designated by the commission as an enhanced recovery reinvestment   zone and that is owned on that date by the person designated by the   commission as the first operator of record for the reinvestment   zone.                (4)  "Property interest" means a person's undivided or   fractional interest in eligible real property.          (b)  A person is entitled to receive from a political   subdivision a limitation on the appraised value of a property   interest owned by a person if:                (1)  the person is designated by the commission under   Section 93.0053 or 93.0054 as the operator of record for an enhanced   recovery reinvestment zone;                (2)  the property interest is an interest in eligible   real property located in the reinvestment zone; and                (3)  the limitation is adopted by the governing body of   the political subdivision in the manner provided by law for   official action by the governing body.          (c)  The amount of the limitation on appraised value that a   person is entitled to receive under Subsection (b) for a tax year is   the amount by which the appraised value of the eligible property   interest exceeds the hold-harmless appraised value applicable to   the enhanced recovery reinvestment zone.          (d)  A person who is entitled to receive a limitation on   appraised value from a political subdivision is entitled to receive   the limitation for each tax year:                (1)  beginning on or after:                      (A)  the date the commission designates the   applicable enhanced recovery reinvestment zone; or                      (B)  a date agreed to by the person and the   political subdivision after the date the commission designates the   applicable reinvestment zone; and                (2)  ending on December 31 of the tax year in which the   reinvestment zone expires.           (e)  The governing body of a political subdivision that   adopts a limitation on appraised value may not repeal the adoption   of the limitation until the date the applicable enhanced recovery   reinvestment zone expires.          (f)  The governing body of a political subdivision may   require a person to enter into a written agreement with the   political subdivision before the political subdivision adopts a   limitation on appraised value of the person's property interest.   The agreement may include:                (1)  a requirement that the limitation is conditioned   on a positive production response from the applicable tertiary   recovery project at a certain rate or after a certain date; and                (2)  any other provision agreed to regarding the   limitation that is not inconsistent with a provision of this   chapter or other law.          (g)  Not later than the 15th day after the date the governing   body of a political subdivision adopts a limitation on appraised   value, the governing body must notify the comptroller and the chief   appraiser of each appraisal district established in a county in   which both the applicable enhanced recovery reinvestment zone and   the political subdivision are located of the governing body's   adoption of the limitation.  The governing body must include with   the notification any written agreement entered into under   Subsection (f).          Sec. 93.0102.  SALES AND USE TAXES REFUND. (a)  On or after   the second anniversary of the date an enhanced recovery   reinvestment zone is designated by the commission under Section   93.0053, a person may apply for a refund of the taxes imposed by   Chapter 151, Tax Code, on the sale or use of a taxable item if:                (1)  the taxable item was sold to or used by a person   designated by the commission under Section 93.0053 or 93.0054 as   the operator of record for the reinvestment zone;                (2)  the person claiming the refund is the current   operator of record designated by the commission for the   reinvestment zone;                (3)  the sale or use occurs on or after the date the   commission designates the reinvestment zone and before the second   anniversary of that date;                 (4)  the taxable item was directly used or consumed   exclusively in the active operation of the tertiary recovery   project located in the reinvestment zone; and                (5)  there was a positive production response as the   result of active operations of the tertiary recovery project before   the second anniversary of the date the commission designates the   reinvestment zone.          (b)  A person is eligible for a refund of the taxes imposed by   a political subdivision under Subtitle C, Title 3, Tax Code, on the   sale or use of a taxable item if:                (1)  the person is eligible for a refund of state taxes   in relation to the taxable item under Subsection (a); and                (2)  the governing body of the political subdivision   authorizes the person to receive refunds of the political   subdivision's taxes in the manner provided by law for official   action by the governing body not later than the 30th day after the   date the commission designates the applicable enhanced recovery   reinvestment zone.          (c)  The governing body of a political subdivision that   authorizes a refund of sales and use taxes under Subsection (b) may   not repeal the authorization.          (d)  Not later than the 15th day after the date the governing   body of a political subdivision authorizes a refund of sales and use   taxes under Subsection (b), the governing body must notify the   comptroller in writing of the authorization.          (e)  A person must apply to the comptroller to receive a   refund of state taxes under Subsection (a).           (f)  The comptroller may require a person or political   subdivision to provide any information necessary to administer this   section, including a monthly accounting of the sales and use taxes   paid by the person that are eligible for a refund under this section   and proof that there has been a positive production response as   required by this section.          Sec. 93.0103.  SALES AND USE TAXES EXEMPTION. (a)  The sale   or use of a taxable item is exempt from the taxes imposed by Chapter   151, Tax Code, if:                (1)  the taxable item is sold to or used by a person   designated by the commission under Section 93.0053 or 93.0054 as   the operator of record for an enhanced recovery reinvestment zone;                (2)  the sale or use occurs on or after the second   anniversary of the date the commission designates the reinvestment   zone and before the date the reinvestment zone expires;                (3)  the taxable item will be directly used or consumed   exclusively in the active operation of the tertiary recovery   project located in the reinvestment zone; and                (4)  there was a positive production response on   average during the preceding three months as the result of active   operations of the tertiary recovery project.          (b)  The sale or use of a taxable item is exempt from the   taxes imposed by a political subdivision under Subtitle C, Title 3,   Tax Code, if:                (1)  the taxable item is exempt from state taxation   under Subsection (a); and                (2)  the governing body of the political subdivision   authorizes the exemption in the manner provided by law for official   action by the governing body not later than the 30th day after the   date the commission designates the applicable enhanced recovery   reinvestment zone.          (c)  The governing body of a political subdivision that   authorizes an exemption of sales and use taxes under Subsection (b)   may not repeal the authorization until the date the applicable   enhanced recovery reinvestment zone expires.          (d)  Not later than the 15th day after the date the governing   body of a political subdivision authorizes an exemption of sales   and use taxes under Subsection (b), the governing body must notify   the comptroller in writing of the authorization.          Sec. 93.0104.  OIL PRODUCTION TAX. (a)  In this section:                (1)  "Hold-harmless production rate" means the average   monthly volume of oil produced from a tertiary recovery project for   the three calendar months preceding the second anniversary of the   date the commission designated the project under this chapter.                (2)  "Incremental production" means the volume of oil   produced from a tertiary recovery project in excess of the   applicable hold-harmless production rate.          (b)  The incremental production of oil from a tertiary   recovery project designated by the commission under this chapter is   exempt from the taxes imposed under Chapter 202, Tax Code.          (c)  The exemption authorized by this section applies only to   oil produced from the tertiary recovery project:                (1)  on or after the second anniversary of the date the   commission designates the tertiary recovery project; and                (2)  not later than the date the enhanced recovery   reinvestment zone in which the tertiary recovery project is located   expires.          Sec. 93.0105.  OTHER TAX BENEFITS. This subchapter does not   limit the eligibility of a person for any other available tax   benefit.          Sec. 93.0106.  REINVESTMENT OF TAX BENEFITS. (a)  An   operator of record that receives a tax benefit under this   subchapter must invest an amount equal to the total taxes saved as a   result of receiving the tax benefits under this subchapter on:                (1)  the development and operation of the applicable   tertiary recovery project; or                (2)  the administration of the tertiary recovery   project, including negotiation with mineral, royalty, or working   interest owners.          (b)  The operator of record responsible for making the   investment required by this section must invest the required   amount:                (1)  on or after the date the applicable tertiary   recovery project is designated by the commission; and                (2)  not later than the date the designation of the   tertiary recovery project expires.          (c)  An operator of record that receives a tax benefit under   this subchapter must maintain a complete record of the taxes for   which the person would have been liable if the person had not been   entitled to the tax benefit.           Sec. 93.0107.  PROVISION OF INFORMATION TO COMPTROLLER. An   operator of record designated under Section 93.0053 or 93.0054 must   provide to the comptroller in the time and manner required by the   comptroller any information necessary for the comptroller to   implement and administer this subchapter.          Sec. 93.0108.  COMPTROLLER RULES. (a)  The comptroller   shall adopt rules necessary to implement and administer this   subchapter.          (b)  An appraisal district must comply with the requirements   of a rule adopted by the comptroller under this section that applies   to a limitation on the appraised value of property interest   authorized by Section 93.0101.          SECTION 2.  A person may not file an application with the   Railroad Commission of Texas under Section 93.0052, Natural   Resources Code, as added by this Act, before January 1, 2018.          SECTION 3.  The Railroad Commission of Texas shall adopt   rules necessary to implement and administer Subchapter B, Chapter   93, Natural Resources Code, as added by this Act, as soon as   practicable after the effective date of this Act but not later than   January 1, 2018.          SECTION 4.  The Railroad Commission of Texas shall prescribe   the application form required by Section 93.0052, Natural Resources   Code, as added by this Act, as soon as practicable after the   effective date of this Act but not later than January 1, 2018.          SECTION 5.  The comptroller of public accounts shall adopt   rules necessary to implement and administer Subchapter C, Chapter   93, Natural Resources Code, as added by this Act, as soon as   practicable after the effective date of this Act but not later than   January 1, 2018.          SECTION 6.  The changes in law made by this Act do not affect   tax liability related to an enhanced recovery reinvestment zone, as   defined by Section 93.0001, Natural Resources Code, as added by   this Act, that occurs before the date the zone is designated under   Section 93.0053, Natural Resources Code, as added by this Act. That   liability continues in effect as if this Act had not been enacted,   and the former law is continued in effect for the collection of   taxes due and for civil and criminal enforcement of the liability   for those taxes.          SECTION 7.  This Act takes effect immediately if it receives   a vote of two-thirds of all the members elected to each house, as   provided by Section 39, Article III, Texas Constitution.  If this   Act does not receive the vote necessary for immediate effect, this   Act takes effect September 1, 2017.