84(R) - 2015
House Ways & Means
House Ways & Means
Oil & Gas
Relating to a sales and use tax exemption and an oil and gas severance tax credit for the use of alternative base fluids in energized fracturing operations; imposing a civil penalty.
A fiscal note dated April 1, 2015 anticipates a negative two-year net impact to General Revenue Related Funds of $11,480,000 through the biennium ending August 31, 2017.
The fiscal note adds that local taxing jurisdiction would lose a proportional amount of sales and use tax revenue.
House Bill 2691 would amend Subchapter H, Chapter 151 of the Tax Code relating to exemptions from the sales and use tax to exempt alternative base fluids and related tangible personal property. The sale, use, or other consumption of alternative fluids used in connection with an energized fracturing operation in an oil or gas well, as well as tangible personal property specifically used to process, reuse, or recycle alternative base fluids that will be used in energized fracturing work performed at an oil or gas well would be exempted from the sales and use tax.
House Bill 2691 would also Subtitle I, Title 2 of the Tax Code related to Severance Taxes to give a tax credit for oil and gas prduced using alternative base fluids. The bill would define "alternative base fluids as a continuous phase fluid that is used in energized fracturing operations to produce oil and gas. The term would include nitrogen, carbon dioxide, and fluids other than water.
The bill would give a tax credit to the person responsible for the actual physical operation of an oil and gas well if the volume of alternative base fluids used as a substitution for water to produce the oil or gas in an energized fracturing operation is equal to at least 20 percent of the total volume of fluid used in the fracturing operation. The amount of the credit would be equal to the percentage of taxes imposed under Chapter 201 and 202 in the absence of the credit, and after applicable tax credits or exemptions. The percentage would be the lesser of 50 percent or the percentage of the total volume of the base fluids used in the fracturing operation that is alternative base fluids.
The credit could be allocated to each person who bears the tax unders Sections 201.205 or 202.156, according to the person ’s proportionate share in the oil or gas produced. The person responsible for paying the tax would have to apply to the comptroller to qualify, and provide certain information. Submitting an application knowing it contains false or untrue material fact would be liable for a civil penalty not to exceed $10,000 and the amount of the credit claimed.
Vote Recommendation Notes
House Bill 2691 would create a sales and use tax exemption on alternative base fluids and related tangible property used in energized fracturing, as well as a a severance tax credit for the use of these alternative fluids in order to encourage the use of certain fracturing fluids as an alternative to using water.
The statement of purpose for House Bill 2691 states that this would be beneficial for oil and gas areas of Texas, which often lack abundant water resources and that there is evidence suggesting alternative fluids can maximize well efficiency and productivity, leading to more oil and gas produced from fewer wells using less water.
While we understand the intent of this bill is well intentioned in a state that is facing a drought, the role of a limited government is not to try and influence how an industry operates, the tools an industry uses, or the degree of efficiency an industry could reach, by distributing tax favors, which ultimately boils down to picking winners and losers. Such favors create distortions and impede the free market system. As a consequence, we oppose House Bill 2691.