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Crude Oil and Natural Gas Tax Review

September 2003

This update is intended to give you general information concerning your tax responsibilities. If you have a question about state crude oil or natural gas severance taxes, please e-mail us at <> or call the Comptroller’s toll-free information hot line at 1-800-252-1384.

Severance Tax Legislative Changes

Elimination of the Application Ending Period for the High-Cost Gas Reduced Tax Rate Exemption and the Enhanced Oil Recovery Project Exemption
House Bill 2424 eliminates the date by which a high-cost well must be spudded or completed to receive RRC certification for a high-cost gas exemption. It also eliminates the date by which an Enhanced Oil Recovery well application must be submitted to receive RRC certification for the Enhanced Oil Recovery 50 percent exemption. The bill does not change the ten-year life of an approved Enhanced Oil Recovery Exemption or an approved High-Cost Gas Reduced Tax Rate Exemption. The effective date of this change is October 1, 2003.

Natural Gas Production Tax Refund Limits, Marketing Cost Deductions and Cash Sales
Beginning January 1, 2004, credit for exemptions for high-cost gas leases will be limited to the amount of taxes paid in the 24 months prior to applying to the Texas Railroad Commission for certification. Effective September 1, 2003, the guidelines for determining marketing cost deductions that are set out in Rule 3.15 are incorporated into the tax code. Also effective September 1, 2003, tax reimbursements will be considered part of gross receipts unless separately stated in the sales contract. All three changes are contained in House Bill 2425.

Oilfield Cleanup Fee Exemptions
Effective September 1, 2003, the Natural Resources Code is amended to ensure that the oilfield cleanup fee is collected on oil and gas produced (except condensate). House Bill 3442 assesses the fee independently of exemptions for high-cost gas, incremental production, co-production projects, enhanced oil recovery projects, two- and three-year inactive wells, TERRA and flared gas.

All Taxes

House Bill 2425,
Effective June 20, 2003

Submitting Refund Claims
Effective June 20, 2003, tax refund claims may be filed only by the person who directly paid the tax to this state (or by that person's attorney, assignee, or other successor). When submitting a refund claim, the taxpayer must state fully and in detail each reason or ground on which the claim is founded.

House Bill 1 (Comptroller Fiscal Programs, Rider 11)
Limitations on Tax Refunds
This bill prohibits the Comptroller from issuing a refund in excess of $250,000 per taxpayer per tax on refund claims, final judgments, and settlement agreements, unless there is a specific legislative appropriation for the payment of that refund. This additional limitation also means that the aggregate refund payments to any single taxpayer cannot exceed $250,000 per tax during the biennium. Refund amounts that cannot be paid may be used as credits to pay other liabilities, including liabilities for other tax types. Exceptions to Rider 11 include:

  • payments on final court judgments entered prior to June 22, 2003;
  • settlement agreements executed prior to June 22, 2003;
  • final Comptroller administrative hearing decisions entered before June 22, 2003;
  • refunds of tax overpayments claimed within 120 days after the due date of the tax;
  • refunds under Property Code, Title 6 (unclaimed property);
  • refunds of tax paid on gasoline/diesel fuel consumed off-road;
  • refunds under Tax Code, Chapter 211 (inheritance tax);
  • refunds under Tax Code, Section 111.109 (voucher for wages paid to an employee receiving financial assistance);
  • refunds under Tax Code, Section 111.301 (reinvestment zones);
  • refunds under Tax Code, Section 151.429 (enterprise projects);
  • refunds under Tax Code, Section 151.4291 (defense readjustment projects);
  • refunds under Tax Code, Section 151.431 (enterprise zones); and
  • refunds under Tax Code, Section 171.501 (enterprise zones).

Any refund claim, or portion thereof, that cannot be paid under the provisions of Rider 11 must be presented to the legislature for specific appropriation in order to be paid. The Comptroller's office will compile a list of such claims for presentation to the 79th Legislature in 2005.

Rule 3.2 will be amended to reflect the provisions of Rider 11.

If you have any questions call my office toll free at 1-800-252-1384, or in Austin at 463-4600. If you're calling from a Telecommunications Device for the Deaf, the toll-free number is 1-800-248-4099, or in Austin at 463-4621.