Approval of reduced tax rates for high-cost gas wells certified by Texas Railroad Commission is regulated by Tax Code Section 201.057.
The Texas Railroad Commission's Statewide Rule (SWR) 101 defines high-cost gas as natural gas:
The Texas Railroad Commission defines tight gas formation as one in which:
Each approved high-cost gas well will receive a reduced tax rate for 10 years or until the well accumulates tax savings of 50 percent of the actual drilling and completion costs for the well, whichever occurs first.
A certification letter from the Texas Railroad Commission for each high-cost gas well must be obtained by filing the commission's Application for Texas Severance Tax Incentive Certification (Form ST-1).
Mail completed Form AP-180 to the Crude Oil and Natural Gas Tax Section of the Comptroller's Account Maintenance Division in Austin, Texas. The mailing address and telephone number are available online.
Drilling and completion costs reported on Form AP-180 are confidential and may not be disclosed except when aggregated with other, similar information to produce industry averages.
A recompletion (or workover) involves working over an existing wellbore to complete in a different field/reservoir. This includes plugging the older producing formation with a plug-back plug and completing in a new producing formation that is usually higher in the well.
If a certified high-cost gas well was previously approved for a reduced tax rate and then later recompleted (or worked over), one of the following situations can occur:
The oil field cleanup regulatory fee is due when items listed below are reported.
To compute the oil field cleanup regulatory fee:
As soon as practicable after March 1 of each year, the Comptroller's office shall determine from Forms AP-180 filed during the previous state fiscal year the median drilling and completion costs for all approved high-cost gas wells. Those median drilling and completion costs shall be used to compute the reduced tax rate for each high-cost gas well.
The reduced tax rate on each well is based on its associated drilling and completion (D&C) costs. This creates the possibility of a different reduced tax rate for each well.
The formula for calculating the reduced tax rate for a well is:
(.075 - (.075 X D&C Costs)) ÷ (2 X median D&C costs for all high-cost gas wells in the previous fiscal year)
A reduced tax rate for a high-cost gas well can be estimated by entering the applicable information in our online rate calculator.
The median cost for wells completed in the prior fiscal year and the estimated reduced tax rate will be displayed after the calculation is complete.
A list of current accumulated savings for a high-cost gas well is displayed by using the Crude Oil and Natural Gas Web Inquiry System. To view a current list, follow these steps:
Amended reports must be filed to receive a credit for previously paid taxes.
Amended reports filed for approved high-cost gas wells must be postmarked on or before four years from the date the tax is due. The taxpayer also must submit a letter requesting a refund or Form 10-147 to transfer a credit.
To qualify for a refund or credit transfer, approved high-cost gas wells with reduced tax rates must meet four requirements. The tax credit amount corresponding to a high-cost gas well will be disallowed if any of the following requirements are not met.
1. Four-Year Statute of Limitations
The statute of limitations for filing amended natural gas tax reports is four years from the date the tax is due for the report period in question.
2. Two-Year Window Requirement
Taxpayers can claim tax credits for up to 24 consecutive calendar months immediately preceding the month in which the application for certification was filed with Texas Railroad Commission.
3. One-Year Window Requirement
The Comptroller's office issues a letter to the taxpayer acknowledging the approval of the reduced tax rate for a high-cost gas well. This letter indicates an approval date. Amended reports containing approved high-cost gas wells with reduced tax rates that have production periods on or before the Comptroller's approval date must be filed by the first anniversary of the Comptroller's approval date.
4. 10 Percent Penalty
Form AP-180 must be filed by the later of the 180th day after the date of first production, or the 45th day after the date of approval by the Texas Railroad Commission. If Form AP-180 is not filed by the applicable deadline, the tax deduction is reduced by 10 percent for the period beginning on the 180th day after the first day of production and ending on the date on which Form AP-180 is postmarked.
Condensate and casinghead gas production are not eligible for the high-cost gas tax incentive.