Bill Caption

Relating to the severance tax exemption for oil and gas produced from certain inactive wells.

Fiscal Notes

No significant fiscal implication to the State is anticipated.

Bill Analysis

HB 1558 would make the two-year inactive well severance tax exemption permanent. The bill would reduce the length of the exemption from ten years to five years and narrow the definition of two-year inactive well. The bill would additionally repeal the severance tax exemption for hydrocarbons produced from three-year inactive wells.

Vote Recommendation Notes

Texas Action opposes HB 1558 for violating the principles of free market and limited government.

The inactive well tax exemption was limited in nature and only applied to certain wells in certain years for a ten year period. The last wells to have received the tax exemption are coming to the tail end of their ten year exempt period which means the entire exemption is effectively phasing out under the provisions of current law. This legislation would revitalize the incentive program for the purpose of encouraging more two-year inactive wells to come back online which would benefit the overall economy even though the wells themselves would be exempt from the severance tax.

While we understand the attractiveness of this kind of incentive program, it does violate our limited government principle by giving preferential tax treatment to a specific industry to encourage desired economic behavior. This leads us to oppose this exemption as we have opposed others throughout the legislative session.