2023 Utah Code › Title 59 - Revenue and Taxation › Chapter 5 - Severance Tax on Oil, Gas, and Mining › Part 1 - Oil and Gas Severance Tax › Section 102 - Definitions -- Severance tax -- Computation -- Rate -- Annual exemption -- Tax credits -- Tax rate reduction.

Effective 7/1/2021
59-5-102.
Definitions -- Severance tax -- Computation -- Rate -- Annual exemption -- Tax credits -- Tax rate reduction.
(1) As used in this section:
(a) "Division" means the Division of Oil, Gas, and Mining created in Section 40-6-15.
(b) "Office" means the Office of Energy Development created in Section 79-6-401.
(c) "Royalty rate" means the percentage of the interests described in Subsection (2)(b)(i) as defined by a contract between the United States, the state, an Indian, or an Indian tribe and the oil or gas producer.
(d) "Taxable value" means the total value of the oil or gas minus:
(i) any royalties paid to, or the value of oil or gas taken in kind by, the interest holders described in Subsection (2)(b)(i); and
(ii) the total value of oil or gas exempt from severance tax under Subsection (2)(b)(ii).
(e) "Taxable volume" means:
(i) for oil, the total volume of barrels minus:
(A) for an interest described in Subsection (2)(b)(i), the product of the royalty rate and the total volume of barrels; and
(B) the number of barrels that are exempt under Subsection (2)(b)(ii); and
(ii) for natural gas, the total volume of MCFs minus:
(A) for an interest described in Subsection (2)(b)(i), the product of the royalty rate and the total volume of MCFs; and
(B) the number of MCFs that are exempt under Subsection (2)(b)(ii).
(f) "Total value" means the value, as determined by Section 59-5-103.1, of all oil or gas that is:
(i) produced; and
(ii)
(A) saved;
(B) sold; or
(C) transported from the field where the oil or gas was produced.
(g) "Total volume" means:
(i) for oil, the number of barrels:
(A) produced; and
(B)
(I) saved;
(II) sold; or
(III) transported from the field where the oil was produced; and
(ii) for natural gas, the number of MCFs:
(A) produced; and
(B)
(I) saved;
(II) sold; or
(III) transported from the field where the natural gas was produced.
(h) "Value of oil or gas taken in kind" means the volume of oil or gas taken in kind multiplied by the market price for oil or gas at the location where the oil or gas was produced on the date the oil or gas was taken in kind.
(2)
(a) Except as provided in Subsection (2)(b), a person owning an interest in oil or gas produced from a well in the state, including a working interest, royalty interest, payment out of production, or any other interest, or in the proceeds of the production of oil or gas, shall pay to the state a severance tax on the owner's interest in the taxable value of the oil or gas:
(i) produced; and
(ii)
(A) saved;
(B) sold; or
(C) transported from the field where the substance was produced.
(b) The severance tax imposed by Subsection (2)(a) does not apply to:
(i) an interest of:
(A) the United States in oil or gas or in the proceeds of the production of oil or gas;
(B) the state or a political subdivision of the state in oil or gas or in the proceeds of the production of oil or gas; and
(C) an Indian or Indian tribe as defined in Section 9-9-101 in oil or gas or in the proceeds of the production of oil or gas produced from land under the jurisdiction of the United States; and
(ii) the value of:
(A) oil or gas produced from stripper wells, unless the exemption prevents the severance tax from being treated as a deduction for federal tax purposes;
(B) oil or gas produced in the first 12 months of production for wildcat wells started after January 1, 1990; and
(C) oil or gas produced in the first six months of production for development wells started after January 1, 1990.
(3)
(a) The severance tax on oil shall be calculated as follows:
(i) dividing the taxable value by the taxable volume;
(ii)
(A) multiplying the rate described in Subsection (4)(a)(i) by the portion of the figure calculated in Subsection (3)(a)(i) that is subject to the rate described in Subsection (4)(a)(i); and
(B) multiplying the rate described in Subsection (4)(a)(ii) by the portion of the figure calculated in Subsection (3)(a)(i) that is subject to the rate described in Subsection (4)(a)(ii);
(iii) adding together the figures calculated in Subsections (3)(a)(ii)(A) and (B); and
(iv) multiplying the figure calculated in Subsection (3)(a)(iii) by the taxable volume.
(b) The severance tax on natural gas shall be calculated as follows:
(i) dividing the taxable value by the taxable volume;
(ii)
(A) multiplying the rate described in Subsection (4)(b)(i) by the portion of the figure calculated in Subsection (3)(b)(i) that is subject to the rate described in Subsection (4)(b)(i); and
(B) multiplying the rate described in Subsection (4)(b)(ii) by the portion of the figure calculated in Subsection (3)(b)(i) that is subject to the rate described in Subsection (4)(b)(ii);
(iii) adding together the figures calculated in Subsections (3)(b)(ii)(A) and (B); and
(iv) multiplying the figure calculated in Subsection (3)(b)(iii) by the taxable volume.
(c) The severance tax on natural gas liquids shall be calculated by multiplying the taxable value of the natural gas liquids by the severance tax rate in Subsection (4)(c).
(4) Subject to Subsection (9):
(a) the severance tax rate for oil is as follows:
(i) 3% of the taxable value of the oil up to and including the first $13 per barrel for oil; and
(ii) 5% of the taxable value of the oil from $13.01 and above per barrel for oil;
(b) the severance tax rate for natural gas is as follows:
(i) 3% of the taxable value of the natural gas up to and including the first $1.50 per MCF for gas; and
(ii) 5% of the taxable value of the natural gas from $1.51 and above per MCF for gas; and
(c) the severance tax rate for natural gas liquids is 4% of the taxable value of the natural gas liquids.
(5) If oil or gas is shipped outside the state:
(a) the shipment constitutes a sale; and
(b) the oil or gas is subject to the tax imposed by this section.
(6)
(a) Except as provided in Subsection (6)(b), if the oil or gas is stockpiled, the tax is not imposed until the oil or gas is:
(i) sold;
(ii) transported; or
(iii) delivered.
(b) If oil or gas is stockpiled for more than two years, the oil or gas is subject to the tax imposed by this section.
(7)
(a) Subject to other provisions of this Subsection (7), a taxpayer that pays for all or part of the expenses of a recompletion or workover may claim a nonrefundable tax credit equal to the amount stated on a tax credit certificate that the office issues to the taxpayer.
(b) The maximum tax credit per taxpayer per well in a calendar year is the lesser of:
(i) 20% of the taxpayer's payment of expenses of a well recompletion or workover during the calendar year; and
(ii) $30,000.
(c) A taxpayer may carry forward a tax credit allowed under this Subsection (7) for the next three calendar years if the tax credit exceeds the taxpayer's tax liability under this part for the calendar year in which the taxpayer claims the tax credit.
(d)
(i) To claim a tax credit under this Subsection (7), a taxpayer shall follow the procedures and requirements of this Subsection (7)(d).
(ii) The taxpayer shall prepare a summary of the taxpayer's expenses of a well recompletion or workover during the calendar year that the well recompletion or workover is completed.
(iii) An independent certified public accountant shall:
(A) review the summary from the taxpayer; and
(B) provide a report on the accuracy and validity of the amount of expenses of a well recompletion or workover that the taxpayer included in the summary, in accordance with the agreed upon procedures.
(iv) The taxpayer shall submit the taxpayer's summary and the independent certified public accountant's report to the division to verify that the expenses certified by the independent certified public accountant are well recompletion or workover expenses.
(v) The division shall return to the taxpayer:
(A) the taxpayer's summary;
(B) the report by the independent certified public accountant; and
(C) a report by the division that includes the amount of approved well recompletion or workover expenses.
(vi) The taxpayer shall apply to the office for a tax credit certificate to receive a written certification, on a form approved by the commission, that includes:
(A) the amount of the taxpayer's payments of expenses of a well recompletion or workover during the calendar year; and
(B) the amount of the taxpayer's tax credit.
(vii) A taxpayer that receives a tax credit certificate shall retain the tax credit certificate for the same time period that a person is required to keep books and records under Section 59-1-1406.
(e) The office shall submit to the commission an electronic list that includes:
(i) the name and identifying information of each taxpayer to which the office issues a tax credit certificate; and
(ii) for each taxpayer, the amount of the tax credit listed on the tax credit certificate.
(f) In accordance with Title 63G, Chapter 3, Utah Administrative Rulemaking Act:
(i) the office may make rules to govern the application process for receiving a tax credit certificate under this Subsection (7); and
(ii) the division shall make rules to establish the agreed upon procedures described in Subsection (7)(d)(iii).
(8)
(a) Subject to the other provisions of this Subsection (8), a taxpayer may claim a tax credit against a severance tax owing on natural gas under this section if:
(i) the taxpayer is required to pay a severance tax on natural gas under this section;
(ii) the taxpayer owns or operates a plant in the state that converts natural gas to hydrogen fuel; and
(iii) all of the natural gas for which the taxpayer owes a severance tax under this section is used for the production in the state of hydrogen fuel for use in zero emission motor vehicles.
(b) The taxpayer may claim a tax credit equal to the lesser of:
(i) the amount of tax that the taxpayer owes under this section; and
(ii) $5,000,000.
(c)
(i) To claim a tax credit under this Subsection (8), a taxpayer shall follow the procedures and requirements of this Subsection (8)(c).
(ii) The taxpayer shall request that the division verify that the taxpayer owns or operates a plant in this state:
(A) that converts natural gas to hydrogen fuel; and
(B) at which all natural gas is converted to hydrogen fuel for use in zero emission motor vehicles.
(d) The division shall submit to the commission an electronic list that includes the name and identifying information of each taxpayer for which the division completed the verification described in Subsection (8)(c).
(9) A 50% reduction in the tax rate is imposed upon the incremental production achieved from an enhanced recovery project.
(10) The taxes imposed by this section are:
(a) in addition to all other taxes provided by law; and
(b) delinquent, unless otherwise deferred, on June 1 following the calendar year when the oil or gas is:
(i) produced; and
(ii)
(A) saved;
(B) sold; or
(C) transported from the field.
(11) With respect to the tax imposed by this section on each owner of an interest in the production of oil or gas or in the proceeds of the production of oil or gas in the state, each owner is liable for the tax in proportion to the owner's interest in the production or in the proceeds of the production.
(12) The tax imposed by this section shall be reported and paid by each producer that takes oil or gas in kind pursuant to an agreement on behalf of the producer and on behalf of each owner entitled to participate in the oil or gas sold by the producer or transported by the producer from the field where the oil or gas is produced.
(13) Each producer shall deduct the tax imposed by this section from the amounts due to other owners for the production or the proceeds of the production.
Amended by Chapter 280, 2021 General Session