| (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) Condensate--Liquid hydrocarbon that is or can be
recovered from gas by a separator but does not include liquid hydrocarbon
recovered from gas by refrigeration or absorption and separated by
a fractionating process.
(4) Hydrocarbons--Any oil or gas produced from a well,
including hydrocarbon production.
(5) 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. 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 gas occupation 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 natural gas tax shall be
borne ratably by all nonexempt interested parties in proportion to
their interests.
(d) Two-year inactive oil well.
(1) To apply for the exemption for a two-year inactive
oil 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 (form AP-217), or any successor to that
form promulgated by the comptroller.
(2) Casinghead gas produced from a certified two-year
inactive oil well is not subject to the natural gas tax. Since oil
wells do not produce condensate, condensate does not qualify for the
exemption for a two-year inactive oil well.
(3) The exemption extends for five years beginning
with the month following the date certified by the commission.
(4) If the tax is paid at the full rate provided by
Tax Code, §201.052(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, §201.052 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 oil well. A two-year
inactive oil well that is subsequently recompleted shall only receive
the five-year exemption from the initial certification of the well.
A taxpayer must file another Texas Well Exemption Application (form
AP-217), or any successor to that form promulgated by the comptroller,
for the recompleted oil well identifying the original commission lease
number when that well meets the requirements:
(1) the commission certifies the recompleted two-year
inactive oil well;
(2) the commission assigns a new lease number for the
recompleted oil well; and
(3) the American Petroleum Institute number for the
well does not change.
(f) Oil-Field cleanup regulatory fee. Gas exempt under
subsection (d) of this section is not exempt from the oil-field cleanup
regulatory fee, which is due on casinghead gas sold.
(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.
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