2006 Utah Code - 59-5-102 — Severance tax -- Rate -- Computation -- Annual exemption -- Tax credit -- Tax rate reduction -- Study by Tax Review Commission -- Study by commission.

     59-5-102.   Severance tax -- Rate -- Computation -- Annual exemption -- Tax credit -- Tax rate reduction -- Study by Tax Review Commission -- Study by commission.
     (1) Each person owning an interest, working interest, royalty interest, payments out of production, or any other interest, in oil or gas produced from a well in the state, or in the proceeds of the production, shall pay to the state a severance tax on the basis of the value determined under Section 59-5-103.1 of the oil or gas:
     (a) produced; and
     (b) (i) saved;
     (ii) sold; or
     (iii) transported from the field where the substance was produced.
     (2) (a) Subject to Subsection (2)(d), the severance tax rate for oil is as follows:
     (i) 3% of the value of the oil up to and including the first $13 per barrel for oil; and
     (ii) 5% of the value of the oil from $13.01 and above per barrel for oil.
     (b) Subject to Subsection (2)(d), the severance tax rate for natural gas is as follows:
     (i) 3% of the value of the natural gas up to and including the first $1.50 per MCF for gas; and
     (ii) 5% of the value of the natural gas from $1.51 and above per MCF for gas.
     (c) Subject to Subsection (2)(d), the severance tax rate for natural gas liquids is 4% of the value of the natural gas liquids.
     (d) (i) On or before December 15, 2004, the Office of the Legislative Fiscal Analyst and the Governor's Office of Planning and Budget shall prepare a revenue forecast estimating the amount of revenues that:
     (A) would be generated by the taxes imposed by this part for the calendar year beginning on January 1, 2004 had 2004 General Session S.B. 191 not taken effect; and
     (B) will be generated by the taxes imposed by this part for the calendar year beginning on January 1, 2004.
     (ii) Effective on January 1, 2005, the tax rates described in Subsections (2)(a) through (c) shall be:
     (A) increased as provided in Subsection (2)(d)(iii) if the amount of revenues estimated under Subsection (2)(d)(i)(B) is less than the amount of revenues estimated under Subsection (2)(d)(i)(A); or
     (B) decreased as provided in Subsection (2)(d)(iii) if the amount of revenues estimated under Subsection (2)(d)(i)(B) is greater than the amount of revenues estimated under Subsection (2)(d)(i)(A).
     (iii) For purposes of Subsection (2)(d)(ii):
     (A) subject to Subsection (2)(d)(iv)(B):
     (I) if an increase is required under Subsection (2)(d)(ii)(A), the total increase in the tax rates shall be by the amount necessary to generate for the calendar year beginning on January 1, 2005 revenues equal to the amount by which the revenues estimated under Subsection (2)(d)(i)(A) exceed the revenues estimated under Subsection (2)(d)(i)(B); or
     (II) if a decrease is required under Subsection (2)(d)(ii)(B), the total decrease in the tax rates shall be by the amount necessary to reduce for the calendar year beginning on January 1, 2005 revenues equal to the amount by which the revenues estimated under Subsection (2)(d)(i)(B) exceed the revenues estimated under Subsection (2)(d)(i)(A); and
     (B) an increase or decrease in each tax rate under Subsection (2)(d)(ii) shall be in

proportion to the amount of revenues generated by each tax rate under this part for the calendar year beginning on January 1, 2003.
     (iv) (A) The commission shall calculate any tax rate increase or decrease required by Subsection (2)(d)(ii) using the best information available to the commission.
     (B) If the tax rates described in Subsections (2)(a) through (c) are increased or decreased as provided in this Subsection (2)(d), the commission shall mail a notice to each person required to file a return under this part stating the tax rate in effect on January 1, 2005 as a result of the increase or decrease.
     (v) The Office of the Legislative Fiscal Analyst and the Governor's Office of Planning and Budget shall report the estimates prepared in the revenue forecast required by Subsection (2)(d)(i) to the:
     (A) commission on or before December 15, 2004; and
     (B) Executive Appropriations Committee on or before January 31, 2005.
     (3) If oil or gas is shipped outside the state:
     (a) the shipment constitutes a sale; and
     (b) the oil or gas is subject to the tax imposed by this section.
     (4) (a) Except as provided in Subsection (4)(b), if the oil or gas is stockpiled, the tax is not imposed until the oil or gas is:
     (i) sold;
     (ii) transported; or
     (iii) delivered.
     (b) Notwithstanding Subsection (4)(a), if oil or gas is stockpiled for more than two years, the oil or gas is subject to the tax imposed by this section.
     (5) A tax is not imposed under this section upon:
     (a) the first $50,000 annually in gross value of each well or wells as defined in this part, to be prorated among the owners in proportion to their respective interests in the production or in the proceeds of the production;
     (b) stripper wells, unless the exemption prevents the severance tax from being treated as a deduction for federal tax purposes;
     (c) the first 12 months of production for wildcat wells started after January 1, 1990; or
     (d) the first six months of production for development wells started after January 1, 1990.
     (6) (a) Subject to Subsections (6)(b) and (c), a working interest owner who pays for all or part of the expenses of a recompletion or workover may claim a nonrefundable tax credit equal to 20% of the amount paid.
     (b) The tax credit under Subsection (6)(a) for each recompletion or workover may not exceed $30,000 per well during each calendar year.
     (c) If any amount of tax credit a taxpayer is allowed under this Subsection (6) exceeds the taxpayer's tax liability under this part for the calendar year for which the taxpayer claims the tax credit, the amount of tax credit exceeding the taxpayer's tax liability for the calendar year may be carried forward for the next three calendar years.
     (7) A 50% reduction in the tax rate is imposed upon the incremental production achieved from an enhanced recovery project.
     (8) The taxes imposed by this section are:
     (a) in addition to all other taxes provided by law; and

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     (b) delinquent, unless otherwise deferred, on June 1 next succeeding the calendar year when the oil or gas is:
     (i) produced; and
     (ii) (A) saved;
     (B) sold; or
     (C) transported from the field.
     (9) With respect to the tax imposed by this section on each owner of oil or gas or in the proceeds of the production of those substances produced in the state, each owner is liable for the tax in proportion to the owner's interest in the production or in the proceeds of the production.
     (10) The tax imposed by this section shall be reported and paid by each producer that takes oil or gas in kind pursuant to agreement on behalf of the producer and on behalf of each owner entitled to participate in the oil or gas sold by the producer or transported by the producer from the field where the oil or gas is produced.
     (11) Each producer shall deduct the tax imposed by this section from the amounts due to other owners for the production or the proceeds of the production.
     (12) (a) The Tax Review Commission shall review the tax provided for in this part on or before the October 2008 interim meeting.
     (b) The Tax Review Commission shall address in its review the following statutory provisions:
     (i) the severance tax rate structure provided for in this section;
     (ii) the exemptions provided for in Subsection (5);
     (iii) the tax credit provided for in Subsection (6), including:
     (A) the cost of the tax credit;
     (B) the purpose and effectiveness of the tax credit; and
     (C) whether the tax credit benefits the state;
     (iv) the tax rate reduction provided for in Subsection (7);
     (v) other statutory provisions or issues as determined by the Tax Review Commission; and
     (vi) whether the statutory provisions the Tax Review Commission reviews under this Subsection (12) should be:
     (A) continued;
     (B) modified; or
     (C) repealed.
     (c) The Tax Review Commission shall report its findings and recommendations regarding the tax provided for in this part to the Revenue and Taxation Interim Committee on or before the November 2008 interim meeting.
     (d) (i) The Tax Review Commission shall review the applicability of the tax provided for in this chapter to coal-to-liquids, oil shale, and tar sands technology on or before the October 2011 interim meeting.
     (ii) The Tax Review Commission shall address in its review the cost and benefit of not applying the tax provided for in this chapter to coal-to-liquids, oil shale, and tar sands technology.
     (iii) The Tax Review Commission shall report its findings and recommendations under Subsections (12)(d)(i) and (ii) to the Revenue and Taxation Interim Committee on or before the November 2011 interim meeting.

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     (13) (a) The commission shall during the 2004 interim:
     (i) subject to Subsection (13)(b), conduct a study of the effective tax burden for the taxes imposed by this part per barrel of oil or MCF of gas for the time period beginning on January 1, 1984 and ending on September 30, 2004;
     (ii) study whether the effective tax burden studied under Subsection (13)(a)(i) has increased or decreased;
     (iii) receive input from the oil and gas industry in conducting the study required by Subsections (13)(a)(i) and (ii);
     (iv) make findings and recommendations regarding whether any provision of this part should be amended, including:
     (A) whether any tax rate under this part should be amended;
     (B) whether a minimum value of oil or gas should be established by statute;
     (C) whether a limit should be established by statute on the amount of processing costs that may be deducted under Section 59-5-103.1; and
     (D) whether a limit other than the limit established in Section 59-5-103.1 should be established by statute on the amount of transportation costs that may be deducted under Section 59-5-103.1; and
     (v) report the findings and recommendations required by Subsection (13)(a)(iv) on or before the October 2004 interim meeting to:
     (A) the Revenue and Taxation Interim Committee; and
     (B) the Utah Tax Review Commission.
     (b) In conducting the study required by Subsections (13)(a)(i) and (ii), the commission shall take into account factors including:
     (i) the production volume of oil and gas;
     (ii) the sales price of oil and gas; and
     (iii) the revenues raised by the taxes imposed by this part for the time period described in Subsection (13)(a)(i).

Amended by Chapter 346, 2006 General Session