BILL REQ. #:  S-4229.2 

Read first time 01/20/2006.   Referred to Committee on Ways & Means.

     AN ACT Relating to the taxation of oil and gas production; adding a new section to chapter 84.36 RCW; adding a new chapter to Title 82 RCW; creating a new section; and providing an effective date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION.  Sec. 1   DEFINITIONS. Unless the context clearly requires otherwise, the definitions in this section apply throughout this chapter.
     (1) "Department" means the department of revenue.
     (2) "Oil" means crude oil, condensate, distillate, or other oil, or other liquid hydrocarbon extracted from any lands or waters of this state, regardless of gravity.
     (3) "Gas" means natural gas and casinghead gas, or other gaseous hydrocarbon from any lands or waters of this state, regardless of whether produced from a gas well or from a well producing oil or other liquid hydrocarbons.
     (4) "Value" means the fair market value of the oil or gas at the time of severance and at the point of production.
     (5) "Operating producer" means a producer who shares in the production expenses of the severed product, and who conducts, personally or by lease or contract, the daily operations of the business of producing the product, including, but not limited to, the sale of the product, receipt of proceeds of sale, and the payment of expenses.
     (6) "Severance" means the taking from the lands or waters of this state of any oil and gas in any manner.
     (7) "Person" means "person" as defined in RCW 82.04.030.
     (8) "Producer" means any person having an economic interest in the severed product, whether engaged in the business of producing or extracting oil or gas or not, who has, as a result of the ownership of such interests, a right to receive a part or all of the oil and gas produced or has a right to receive all or a part of the proceeds of the oil or gas severed. Such persons include, but are not limited to, persons owning a royalty interest, an overriding royalty interest, a working or operating interest, a net profit interest, or any combination thereof, but does not include laborers or employees working on or at the production site.
     (9) "Point of production" means:
     (a) For oil, the point where it is severed and is first metered or measured in a manner approved by the department;
     (b) For gas recovered from or in association with oil, where it is severed and is first metered or measured in a manner approved by the department after separation from the oil;
     (c) For gas not recovered from or in association with oil, where it is severed and is first metered or measured in a manner approved by the department.

NEW SECTION.  Sec. 2   IMPOSITION AND RATE OF SEVERANCE TAX. (1) In addition to any other tax, an excise tax is imposed upon the severance of oil and gas from any lands or waters of this state, less the value of any part of the oil or gas, the ownership or right to which is exempt from taxation under section 4 of this act.
     (2) The rate of the tax imposed is six percent.
     (3) The measure of the tax is the value of the oil and gas at the time and point of production.

NEW SECTION.  Sec. 3   PAYMENT AND COLLECTION OF TAX. (1) The taxes imposed by this chapter on the severance of oil and gas is the liability of the producer or producers. The operating producer shall file the return with the department, shall pay the tax due, and shall deduct and withhold the rateable share of the tax from payments made to other producers in proportion to their interest.
     (2) If oil or gas on which the severance and conservation taxes are due is not sold at the time of production but is retained by the producer, the operating producer shall pay to the department the taxes due with respect to the oil and gas severed but not sold and shall deduct or withhold the rateable share of the tax from payments made to other producers in proportion to their interest.
     (3) The department may require taxes to be paid upon the basis of the prevailing price being paid at the time and point of production of other oil or gas of like kind, character, quality, or comparable source when the value reported to the department does not represent the market value of oil or gas sold or retained.

NEW SECTION.  Sec. 4   EXEMPTIONS. The following are exempt from the taxes imposed under this chapter:
     (1) The value of any oil or gas reinjected for storage, provided that any subsequent removal of oil or gas produced in this state from storage for sale, use, or other retention shall constitute a severance within the meaning of this chapter.
     (2) The value of any oil or gas owned by a producer or producers exempt from tax by reason of federal law or a compact negotiated by the state with a tribal government.

NEW SECTION.  Sec. 5   APPLICABILITY OF GENERAL ADMINISTRATIVE PROVISIONS--DEPARTMENTAL RULES. All of chapter 82.32 RCW applies to the tax imposed by this chapter. The department shall provide for the effective administration of this chapter by rules which shall include, but are not limited to, the determination of value at the time and point of production and a determination of metering methods and measuring the severance of oil and gas.

NEW SECTION.  Sec. 6   COLLECTION AND DEPOSIT OF REVENUE FROM THE SEVERANCE TAX--SHARING OF REVENUE FROM THE SEVERANCE TAX WITH LOCAL GOVERNMENTS. (1) The department shall deposit eighty percent of the amount collected by it under section 2 of this act in the general fund.
     (2) The local government severance taxation account is established in the state treasury into which twenty percent of the taxes collected under section 2 of this act shall be deposited. Money in the account may be spent after appropriation. Money in this account shall be used solely for making distributions to those local governments in which impacts from oil and gas production activities occur, after appropriation by statute.

NEW SECTION.  Sec. 7   SHORT TITLE. This chapter may be known and cited as the oil and gas severance and conservation act.

NEW SECTION.  Sec. 8   A new section is added to chapter 84.36 RCW to read as follows:
     EXEMPTION OF OIL AND GAS RESERVES AND LEASES. (1) The following property is exempt from ad valorem taxation: Oil or gas reserves and leases on the rights to develop and operate upon or within any lands and waters of this state for oil or gas and the property rights attached to or inherent therein.
     (2) This section does not in any way exempt the land, improvements, or other personal property from ad valorem taxation.

NEW SECTION.  Sec. 9   Sections 1 through 7 of this act constitute a new chapter in Title 82 RCW.

NEW SECTION.  Sec. 10   If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION.  Sec. 11   Captions used in this act are not part of the law.

NEW SECTION.  Sec. 12   Sections 1 through 8 of this act take effect January 1, 2007.