2023 Illinois Compiled Statutes › Chapter 35 - REVENUE › 35 ILCS 450/ - Illinois Hydraulic Fracturing Tax Act. › Article 2 - Illinois Hydraulic Fracturing Tax Act

(35 ILCS 450/Art. 2 heading)
ARTICLE 2.
(Source: P.A. 98-22, eff. 6-17-13.)
(35 ILCS 450/2-5)
Sec. 2-5. Short title. This Act may be cited as the "Illinois Hydraulic Fracturing Tax Act".
(Source: P.A. 98-22, eff. 6-17-13.)
(35 ILCS 450/2-10)
Sec. 2-10. Definitions.  For the purposes of this Act, unless the context otherwise requires:
"Barrel" for oil measurement means a barrel of 42 U.S. gallons of 231 cubic inches per gallon, computed at a temperature of 60 degrees Fahrenheit.
"Construction" means any constructing, altering, reconstructing, repairing, rehabilitating, refinishing, refurbishing, remodeling, remediating, renovating, custom fabricating, maintaining, landscaping, improving, drilling, testing, moving, wrecking, painting, decorating, demolishing, and adding to or subtracting from any building, structure, highway, roadway, street, bridge, alley, sewer, ditch, water works, parking facility, railroad, excavation or other structure, project, development, real property or improvement, or to do any part thereof, whether or not the performance of the construction involves the addition to, or fabrication into, any structure, project, development, real property or improvement herein described performed or done on behalf of an operator in connection with and at the location of a well site subject to the tax imposed by this Act.
"Construction worker" means a person performing construction.
"Department" means the Illinois Department of Revenue.
"Fracturing" or "hydraulic fracturing" means the propagation of fractures in a rock layer, by a pressurized fluid used to release petroleum or natural gas (including shale gas, tight gas, and coal seam gas), for extraction.
"Gas" means natural gas taken from below the surface of the earth or water in this State, regardless of whether the gas is taken  from a gas well or from a well also productive of oil or any other product.
"General prevailing rate of hourly wages" has the meaning ascribed to it in Section 2 of the Prevailing Wage Act, as determined by the Director of the Department of Labor under Section 9 of the Prevailing Wage Act for the county in which the construction occurs.
"Illinois construction worker" means a construction worker, as defined in this Section, domiciled in Illinois for 24 months prior to the date of the issuance of a high volume horizontal hydraulic fracturing permit for the well site on which the construction is performed.
"Lease number" means the number assigned by the purchaser to identify each production unit.
"Oil" means petroleum or other crude oil, condensate, casinghead gasoline, or other mineral oil that is severed or withdrawn from below the surface of the soil or water in this State.
"Operator" means the person primarily responsible for the management and operation of oil or gas productions from a production unit.
"Person" means any natural individual, firm, partnership, association, joint stock company, joint adventure, public or private corporation, limited liability company, or a receiver, executor, trustee, guardian, or other representative appointed by order of any court.
"Producer" means any person owning, controlling, managing, or leasing any oil or gas property or oil or gas well, and any person who severs in any manner any oil or gas in this State, and shall include any person owning any direct and beneficial interest in any oil or gas produced, whether severed by such person or some other person on their behalf, either by lease, contract, or otherwise, including working interest owners, overriding royalty owners, or royalty owners.
"Production unit" means a unit of property designated by the Department of Natural Resources from which oil or gas is severed.
"Purchaser" means a person who is the first purchaser of a product after severance from a production unit.
"Remove" or "removal" means the physical transportation of oil or gas off of the production unit where severed; and if the oil or gas is used on the premises where severed, or if the manufacture or conversion of oil or gas into refined products occurs on the premises where severed, oil or gas shall be deemed to have been removed on the date such use, manufacture, or conversion begins.
"Severed" or "severing" means: (1) the production of oil through extraction or withdrawal of the same, whether such extraction or withdrawal is by natural flow, mechanical flow, forced flow, pumping, or any other means employed to get the oil from below the surface of the soil or water and shall include the withdrawal by any means whatsoever of oil upon which the tax has not been paid, from any surface reservoir, natural or artificial, or from a water surface; and (2) the production of gas through the extraction or withdrawal of the same by any means whatsoever, from below the surface of the earth or water.
"Severance" means the taking of oil or gas from below the surface of the soil or water in any manner whatsoever.
"Total workforce hours" means all hours worked by construction workers on a well site, beginning on the date an application for a permit to perform high volume horizontal hydraulic fracturing operations at the well is filed under Section 1-35 of the Hydraulic Fracturing Regulatory Act and ending on the date of first production following initial drilling or any reworking of the well.
"Value" means the sale price of oil or gas at the time of removal of the oil or gas from the production unit and if oil or gas is exchanged for something other than cash, or if no sale occurs at the time of removal, or if the Department determines that the relationship between the buyer and the seller is such that the consideration paid, if any, is not indicative of the true value or market price, then the Department shall determine the value of the oil or gas subject to tax based on the cash price paid to one or more producers for the oil or gas or based on the cash price paid to producers for like quality oil or gas in the vicinity of the production unit at the time of the removal of the oil or gas from the production unit.
"Well site" has the meaning ascribed to the term in Section 1-5 of the Hydraulic Fracturing Regulatory Act.
"Working interest" means any interest in or any right to the production of oil and gas, excluding royalty or overriding royalty interests.
(Source: P.A. 98-22, eff. 6-17-13.)
(35 ILCS 450/2-15)
Sec. 2-15. Tax imposed.
(a) For oil and gas removed on or after July 1, 2013, there is hereby imposed a tax upon the severance and production of oil or gas from a well on a production unit in this State permitted, or required to be permitted, under the Illinois Hydraulic Fracturing Regulatory Act, for sale, transport, storage, profit, or commercial use. The tax shall be applied equally to all portions of the value of each barrel of oil severed and subject to such tax and to the value of the gas severed and subject to such tax. For a period of 24 months from the month in which oil or gas was first produced from the well, the rate of tax shall be 3% of the value of the oil or gas severed from the earth or water in this State.  Thereafter, the rate of the tax shall be as follows:
(1) For oil:
(A) where the average daily production from the         well during the month is less than 25 barrels, 3% of the value of the oil severed from the earth or water;
(B) where the average daily production from the         well during the month is 25 or more barrels but less than 50 barrels, 4% of the value of the oil severed from the earth or water;
(C) where the average daily production from the         well during the month is 50 or more barrels but less than 100 barrels, 5% of the value of the oil severed from the earth or water; or
(D) where the average daily production from the         well during the month is 100 or more barrels, 6% of the value of the oil severed from the earth or water.
(2) For gas, 6% of the value of the gas severed from     the earth or water.
If a well is required to be permitted under the Hydraulic Fracturing Regulatory Act, the tax imposed by this Section applies, whether or not a permit was obtained.
(b) Oil produced from a well whose average daily production is 15 barrels or less for the 12-month period immediately preceding the production is exempt from the tax imposed by this Act.
(c) For the purposes of the tax imposed by this Act the amount of oil produced shall be measured or determined, in the case of oil, by tank tables, without deduction for overage or losses in handling. Allowance for any reasonable and bona fide deduction for basic sediment and water, and for correction of temperature to 60 degrees Fahrenheit will be allowed. For the purposes of the tax imposed by this Act the amount of gas produced shall be measured or determined, by meter readings showing 100% of the full volume expressed in cubic feet at a standard base and flowing temperature of 60 degrees Fahrenheit, and at the absolute pressure at which the gas is sold and purchased. Correction shall be made for pressure according to Boyle's law, and used for specific gravity according to the gravity at which the gas is sold and purchased.
(d) The following severance and production of gas shall be exempt from the tax imposed by this Act: gas injected into the earth for the purpose of lifting oil, recycling, or repressuring; gas used for fuel in connection with the operation and development for, or production of, oil or gas in the production unit where severed; and gas lawfully vented or flared; gas inadvertently lost on the production unit by reason of leaks, blowouts, or other accidental losses.
(e) All oil and gas removed from the premises where severed is subject to the tax imposed by this Act unless exempt under the terms of this Act.
(f) The liability for the tax accrues at the time the oil or gas is removed from the production unit.
(Source: P.A. 98-22, eff. 6-17-13; 98-756, eff. 7-16-14.)
(35 ILCS 450/2-17)
Sec. 2-17. Local Workforce Tax Rate Reduction.
(a)   The rate of tax imposed on working interest owners of a well under Section 2-15 of this Act shall be reduced by 0.25% for the life of the well when a minimum of 50% of the total workforce hours on the well site are performed by Illinois construction workers being paid wages equal to or exceeding the general prevailing rate of hourly wages.
(b)   When more than one well is drilled on a well site, total workforce hours shall be determined on a well-by-well basis.
(c)   Any operator that intends to claim the reduction provided for in this Section on his or her behalf, or on the behalf of the working interest owners, shall be responsible for obtaining from all construction contractors working on a well site, records to document the claim for the reduction in tax rate. Operators shall, at a minimum, obtain from construction contractors, in writing, the total number of construction workers that performed work under the contract, the number of Illinois construction workers that performed work under the contract, whether oral or written, between the operator and the construction contractor, the hours worked by each construction worker and the wage paid to each construction worker for the hours of work performed on the well site. The operator shall obtain and retain any other records the Department determines are necessary to verify a claim for a reduction in the tax. The operator shall make the records available to the Department upon request.
For the purposes of this Section, each construction contractor, upon written request from the operator, shall retain the following records: each worker's name, address, and telephone number, if available, years of residency in Illinois, the type of work the worker performs, the hourly wages paid each worker, and the number of hours worked by each worker for the term of the contract. The construction contractor shall retain any other records the Department determines are necessary to verify a claim for a reduction in the tax. The construction contractor shall make the records available to the operator and Department upon request. The operator and construction contractors shall retain the records for 3 years.
No later than the 6 months after the date of the first purchase of oil or gas from a well, the operator shall file with the Department, in the form and manner required by the Department, a report and documentation to support that the working interest owners qualify for the reduction in the rate of tax provided for in this Section. The report shall be signed by the operator, or an officer, employee, or agent of the contractor, and state under oath that he or she has examined the report and documentation and the report and documentation are true and accurate.  The Department shall keep the records submitted in accordance with this subsection for a period of not less than 3 years from the date of filing.
(d)   The Department shall notify the first purchaser and the operator when the working interest owners qualify for a reduction in the tax under this Section and state the amount of the reduction. The reduction shall be effective the date of first production. The first purchaser or operator may take a credit for any retroactive reduction in the tax rate on a return filed under Sections 2-45 and 2-50 of this Act.
(e)   Reports shall be filed on forms furnished and prescribed by the Department and shall contain any other information as the Department may reasonably require.
(Source: P.A. 98-22, eff. 6-17-13.)
(35 ILCS 450/2-20)
Sec. 2-20. Taxable value; method of determining.  The Department may determine the value of products severed from a production unit when the operator and purchaser are affiliated persons, when the sale and purchase of products is not an arm's length transaction, or when products are severed and removed from a production unit and a value is not established for those products. The value determined by the Department shall be commensurate with the actual price received for products of like quality, character, and use which are severed in the same field or area.  If there are no sales of products of like quality, character, and use severed in the same field or area, then the Department shall establish a reasonable value based on sales of products of like quality, character, and use which are severed in other areas of the State, taking into consideration any other relevant factors.
(Source: P.A. 98-22, eff. 6-17-13.)
(35 ILCS 450/2-25)
Sec. 2-25. Withholding of tax.  Any purchaser who makes a monetary payment to a producer for his or her portion of the value of products from a production unit shall withhold from such payment the amount of tax due from the producer. Any purchaser who pays any tax due from a producer shall be entitled to reimbursement from the producer for the tax so paid and may take credit for such amount from any monetary payment to the producer for the value of products. To the extent that a purchaser required to collect the tax imposed by this Act has actually collected that tax, such tax is held in trust for the benefit of the State of Illinois.
(Source: P.A. 98-22, eff. 6-17-13.)
(35 ILCS 450/2-30)
Sec. 2-30. Payment and collection of tax.
(a) For oil and gas removed on or after July 1, 2013, the tax incurred under this Act shall be due and payable on or before the last day of the month following the end of the month in which the oil or gas is removed from the production unit. The tax is upon the producers of such oil or gas in the proportion to their respective beneficial interests at the time of severance. The first purchaser of any oil or gas sold shall collect the amount of the tax due from the producers by deducting and withholding such amount from any payments made by such purchaser to the producers and shall remit the tax in this Act.
In the event the tax shall be withheld by a purchaser from payments due a producer and such purchaser fails to make payment of the tax to the State as required herein, the first purchaser shall be liable for the tax. However, in the event a first purchaser fails to pay the tax withheld from a producer's payment, the producer's interest remains subject to any lien filed pursuant to subsection (c) of this Section. A producer shall be entitled to bring an action against such purchaser to recover the amount of tax so withheld together with penalties and interest which may have accrued by failure to make such payment. A producer shall be entitled to all attorney fees and court costs incurred in such action. To the extent that a producer liable for the tax imposed by this Act collects the tax, and any penalties and interest, from a purchaser, such tax, penalties, and interest are held in trust by the producer for the benefit of the State of Illinois.
(b) For all production units a first purchaser begins to purchase oil or gas from on or after July 1, 2013, the first purchaser is required to withhold and remit the tax imposed by this Act to the Department from the oil and gas purchased from the production unit unless the first purchaser obtains from the operator an exemption certificate signed by the operator stating that the production unit is not subject to the tax imposed by this Act. The exemption certificate must include the following information:
(1) name and address of the operator;
(2) name of the production unit;
(3) number assigned to the production unit by the     first purchaser, if available;
(4) legal description of the production unit; and
(5) a statement by the operator that the production     unit is exempt from the tax imposed by the Illinois Hydraulic Fracturing Tax Act.
If a first purchaser obtains an exemption certificate that contains the required information and reasonably relies on the exemption certificate and it is subsequently determined by the Department that the production unit is subject to the tax imposed by this Act, the Department will collect any tax that is due from the operator and producers, and the first purchaser is relieved of any liability.
First purchasers shall not be required to obtain exemption certificates from the operator until the first high volume horizontal hydraulic fracturing permit has been approved by the Department of Natural Resources after the effective date of this amendatory Act of the 100th General Assembly.
(c) Notwithstanding subsection (a) of this Section, the tax is a lien on the oil and gas from the time of severance from the land or under the water until the tax and all penalties and interest are fully paid, and the State shall have a lien on all the oil or gas severed from the production unit in this State in the hands of the operator, any producer or the first or any subsequent purchaser thereof to secure the payment of the tax.  If a lien is filed by the Department, the purchaser shall withhold from producers or operators the amount of tax, penalty and interest identified in the lien.
(Source: P.A. 100-1006, eff. 1-1-19.)
(35 ILCS 450/2-35)
Sec. 2-35. Registration of purchasers.  A person who engages in business as a purchaser of oil or gas in this State shall register with the Department. Application for a certificate of registration shall be made to the Department upon forms furnished by the Department and shall contain any reasonable information the Department may require. Upon receipt of the application for a certificate of registration in proper form, the Department shall issue to the applicant a certificate of registration.
(Source: P.A. 98-22, eff. 6-17-13.)
(35 ILCS 450/2-40)
Sec. 2-40. Inspection of records by the Department; subpoena power, contempt.  The Department shall have the power to require any operator, producer, transporter, or person purchasing any oil or gas severed from the earth or water to furnish any additional information deemed to be necessary for the purpose of computing the amount of the tax, and for such purpose to examine the meter and other charts, books, records, and all files of such person, and for such purpose the Department shall have the power to issue subpoenas and examine witnesses under oath, and if any witness shall fail or refuse to appear at the request of the Director, or refuses access to books, records, and files, the circuit court of the proper county, or the judge thereof, on application of the Department, shall compel obedience by proceedings for contempt, as in the case of disobedience of the requirements of a subpoena issued from such court or a refusal to testify therein.
(Source: P.A. 98-22, eff. 6-17-13.)
(35 ILCS 450/2-45)
Sec. 2-45. Purchaser's return and tax remittance.  Each purchaser shall make a return to the Department showing the quantity of oil or gas purchased during the month for which the return is filed, the price paid therefor, total value, the name and address of the operator or other person from whom the same was purchased, a description of the production unit in the manner prescribed by the Department from which such oil or gas was severed and the amount of tax due from each production unit for each calendar month. All taxes due, or to be remitted, by the purchaser shall accompany this return. The return shall be filed on or before the last day of the month after the calendar month for which the return is required. The Department shall forward the necessary information to each Chief County Assessment Officer for the administration and application of ad valorem real property taxes at the county level. This information shall be forwarded to the Chief County Assessment Officers in a yearly summary before March 1 of the following calendar year. The Department may require any additional report or information it may deem necessary for the proper administration of this Act.
Such returns shall be filed electronically in the manner prescribed by the Department. Purchasers shall make all payments of that tax to the Department by electronic funds transfer unless, as provided by rule, the Department grants an exception upon petition of a purchaser. Purchasers' returns must be accompanied by appropriate computer generated magnetic media supporting schedule data in the format required by the Department, unless, as provided by rule, the Department grants an exception upon petition of a purchaser.
If any payment provided for in this Section exceeds the purchaser's liabilities under this Act, as shown on an original return, the purchaser may credit such excess payment against liability subsequently to be remitted to the Department under this Act, in accordance with reasonable rules adopted by the Department.
(Source: P.A. 100-1171, eff. 1-4-19.)
(35 ILCS 450/2-50)
Sec. 2-50. Operator returns; payment of tax.
(a) If, on or after July 1, 2013, oil or gas is transported off the production unit where severed by the operator, used on the production unit where severed, or if the manufacture and conversion of oil and gas into refined products occurs on the production unit where severed, the operator is responsible for remitting the tax imposed under subsection (a) of Section 2-15, on or before the last day of the month following the end of the calendar month in which the oil and gas is removed from the production unit, and such payment shall be accompanied by a return to the Department showing the gross quantity of oil or gas removed during the month for which the return is filed, the price paid therefor, and if no price is paid therefor, the value of the oil and gas, a description of the production unit from which such oil or gas was severed, and the amount of tax. The Department may require any additional information it may deem necessary for the proper administration of this Act.
(b) Operators shall file all returns electronically in the manner prescribed by the Department unless, as provided by rule, the Department grants an exception upon petition of an operator. Operators shall make all payments of that tax to the Department by electronic funds transfer unless, as provided by rule, the Department grants an exception upon petition of an operator. Operators' returns must be accompanied by appropriate computer generated magnetic media supporting schedule data in the format required by the Department, unless, as provided by rule, the Department grants an exception upon petition of a purchaser.
(c) Any operator who makes a monetary payment to a producer for his or her portion of the value of products from a production unit shall withhold from such payment the amount of tax due from the producer. Any operator who pays any tax due from a producer shall be entitled to reimbursement from the producer for the tax so paid and may take credit for such amount from any monetary payment to the producer for the value of products. To the extent that an operator required to collect the tax imposed by this Act has actually collected that tax, such tax is held in trust for the benefit of the State of Illinois.
(d) In the event the operator fails to make payment of the tax to the State as required herein, the operator shall be liable for the tax.  A producer shall be entitled to bring an action against such operator to recover the amount of tax so withheld together with penalties and interest which may have accrued by failure to make such payment. A producer shall be entitled to all attorney fees and court costs incurred in such action. To the extent that a producer liable for the tax imposed by this Act collects the tax, and any penalties and interest, from an operator, such tax, penalties, and interest are held in trust by the producer for the benefit of the State of Illinois.
(e) When the title to any oil or gas severed from the earth or water is in dispute and the operator of such oil or gas is withholding payments on account of litigation, or for any other reason, such operator is hereby authorized, empowered and required to deduct from the gross amount thus held the amount of the tax imposed and to make remittance thereof to the Department as provided in this Section.
(f) An operator required to file a return and pay the tax under this Section shall register with the Department. Application for a certificate of registration shall be made to the Department upon forms furnished by the Department and shall contain any reasonable information the Department may require. Upon receipt of the application for a certificate of registration in proper form, the Department shall issue to the applicant a certificate of registration.
(g) If oil or gas is transported off the production unit where severed by the operator and sold to a purchaser or refiner, the State shall have a lien on all the oil or gas severed from the production unit in this State in the hands of the operator, the first or any subsequent purchaser thereof, or refiner to secure the payment of the tax. If a lien is filed by the Department, the purchaser or refiner shall withhold from the operator the amount of tax, penalty and interest identified in the lien.
(h) If any payment provided for in this Section exceeds the operator's liabilities under this Act, as shown on an original return, the operator may credit such excess payment against liability subsequently to be remitted to the Department under this Act, in accordance with reasonable rules adopted by the Department.
(Source: P.A. 100-1171, eff. 1-4-19.)
(35 ILCS 450/2-55)
Sec. 2-55. Tax withholding and remittance when title to minerals disputed.  When the title to any oil or gas severed from the earth or water is in dispute and the purchaser of such oil or gas is withholding payments on account of litigation, or for any other reason, such purchaser is hereby authorized, empowered and required to deduct from the gross amount thus held the amount of the tax imposed and to make remittance thereof to the Department as provided in this Act.
(Source: P.A. 98-22, eff. 6-17-13.)
(35 ILCS 450/2-60)
Sec. 2-60. Transporters.  When requested by the Department, all transporters of oil or gas out of, within or across the State of Illinois shall be required to furnish the Department such information relative to the transportation of such oil or gas as the Department may require. The Department shall have authority to inspect bills of lading, waybills, meter, or other charts, documents, books and records as may relate to the transportation of oil or gas in the hands of each transporter. The Department shall further be empowered to demand the production of such bills of lading, waybills, charts, documents, books, and records relating to the transportation of oil or gas at any point in the State of Illinois.
(Source: P.A. 98-22, eff. 6-17-13.)
(35 ILCS 450/2-65)
Sec. 2-65. Rulemaking.  The Department is hereby authorized to adopt any rules as may be necessary to administer and enforce the provisions of this Act.
(Source: P.A. 98-22, eff. 6-17-13.)
(35 ILCS 450/2-70)
Sec. 2-70. Incorporation by reference.  All of the provisions of Sections 4, 5, 5a, 5b, 5c, 5d, 5e, 5f, 5g, 5j, 6, 6a, 6b, 6c, 7, 8, 9, 10, 11, 11a, 12, and 13 of the "Retailers' Occupation Tax Act" which are not inconsistent with this Act, and all provisions of the Uniform Penalty and Interest Act shall apply, as far as practicable, to the subject matter of this Act to the same extent as if such provisions were included herein.
(Source: P.A. 98-22, eff. 6-17-13.)
(35 ILCS 450/2-75)
Sec. 2-75. Distribution of proceeds.  All moneys received by the Department under this Act shall be paid into the General Revenue Fund in the State treasury.
(Source: P.A. 98-22, eff. 6-17-13.)