SECTION 3.34. Exemption of Governmental Entities and Two-Year Inactive Wells

(a) Definitions. The following words and terms, when used in this section, shall have the following meanings, unless the context clearly indicates otherwise.

(1) Casinghead gas--Gas or vapor indigenous to an oil stratum and produced from the stratum with oil.

(2) Commission--The Railroad Commission of Texas.

(3) Hydrocarbons--Any oil or gas produced from a well, including hydrocarbon production.

(4) Two-year inactive well--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. The term only includes a well certified by the commission on or after September 1, 2019, and does not include a well that is:

(A) part of an enhanced oil recovery project, as defined by Natural Resources Code, §89.002 (Definitions); or

(B) drilled but not completed and that does not have a record of hydrocarbon production reported to the commission.

(b) Exemption of certain entities. The federal government and its subdivisions and the State of Texas and its subdivisions are not subject to the oil production tax.

(1) Subdivisions of the federal government include, but are not limited to, the following:

(A) the Federal Land Bank;

(B) the Department of the Interior;

(C) the Bureau of Land Management; and

(D) the Army Corps of Engineers.

(2) Subdivisions of the State of Texas include, but are not limited to, the following:

(A) Texas cities, towns, and villages;

(B) Texas counties;

(C) Texas independent and common school districts; and

(D) Texas public colleges and universities.

(c) Tax borne ratably. The tax shall be borne ratably by all nonexempt interested parties in proportion to their interests.

(d) Two-year inactive wells.

(1) To apply for the exemption for a two-year inactive well, taxpayers must submit to the comptroller a copy of the approved certification letter provided by the commission and a completed Texas Well Exemption Application (AP-217), or any successor to that form promulgated by the comptroller.

(2) The exemption for the two-year inactive well extends for five years beginning with the month following the date certified by the commission.

(3) If the tax is paid at the full rate provided by Tax Code, §202.052(a) (Rate of Tax) before the comptroller approves an application for an exemption provided for in this subsection (d) of this section, the operator is entitled to a credit against taxes imposed by Tax Code, §202.052 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 Tax Code, §111.104 (Refunds).

(e) Recompleted two-year inactive well. A two-year inactive well that is recompleted shall only receive the five-year exemption from the initial certification of the well. A taxpayer must file another Texas Well Exemption Application (AP-217), or any successor to that form promulgated by the comptroller, for the recompleted well identifying the original commission lease number when that well meets the requirements:

(1) the commission certifies the recompleted two-year inactive well;

(2) the commission assigns a new lease number for the recompleted well; and

(3) the American Petroleum Institute number for the well does not change.

(f) Oil-Field cleanup regulatory fee. The exemption provided by subsection (d) of this section does not extend to the oil-field cleanup regulatory fee.

(g) Penalty. On notice from the commission that the certification for 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. A person who claims the exemption is liable to the state for a civil penalty if the person applies or attempts to apply the tax exemption allowed by subsection (d) of this section after the certification for a two-year inactive well is revoked. The amount of the penalty may not exceed the sum of:

(1) $10,000; or

(2) the difference between the amount of taxes paid or attempted to be paid and the amount of taxes due.

Source Note: The provisions of this §3.34 adopted to be effective September 15, 2020, 45 TexReg 6377