Arkansas Code, Volume 27B, 2011 Supplement

2011·7.4 MB·English

by  State of Arkansas

Arkansas Code
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2011
VOLUME
27B
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ARKANSAS CODE REVISION COMMISSION
Senator David Johnson, Chair
Senator Sue Madison
Representative John Vines
Representative Darrin Williams
Honorable Bettina E. Brownstein
Honorable Don Schnipper
Honorable David R. Matthews
Honorable Stacy Leeds, Dean, University ofArkansas at
Fayetteville, School ofLaw
Honorable John DiPippa, Dean, University ofArkansas at
Little Rock, School ofLaw
Honorable Warren T. Readnour, Senior Assistant Attorney General
Honorable Marty Garrity, Assistant Director for Legal Services of
the Bureau ofLegislative Research
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TITLE 26
TAXATION
(CHAPTERS 1-33 IN VOLUME 26A; CHAPTERS 34-51 IN
VOLUME 26B; CHAPTERS 52-57 IN VOLUME 27A)
SUBTITLE STATE TAXES
5.
CHAPTER.
58. SEVERANCE TAXES.
60. REAL PROPERTYTRANSFER TAX.
TAX ON TIMBERLANDS AND RANGELANDS.
61.
62. ALTERNATIVE FUELS TAX.
63. ARKANSAS SPECIAL EXCISE TAXES.
SUBTITLE LOCAL TAXES
6.
CHAPTER
TAXATION GENERALLY.
73.
74. COUNTY SALES AND USE TAXES.
75. MUNICIPAL SALES AND USE TAXES.
76. COUNTY PRIVILEGE AND LICENSE TAXES.
77. MUNICIPAL OCCUPATIONAL TAXES AND LICENSES.
78. COUNTYAND MUNICIPAL MOTORVEHICLE TAX.
80. SCHOOL DISTRICT TAXES.
81. MULTICOUNTYAIRPORT AND RIVERPORT FINANCINGACT.
82. LOCAL SALES AND USE TAX ECONOMIC DEVELOPMENT PROJECT
FUNDINGACT [EFFECTIVE OCTOBER 1, 2011.]
SUBTITLE STATE TAXES
5.
CHAPTER
58
SEVERANCE TAXES
subchapter
1. General Provisions.
2. Tax Credits for Certain Oil and Gas Producers.
3. Additional Oil and Brine Taxes.
—
Subchapter 1 General Provisions
SECTION. SECTION.
26-58-101. Definitions. Penalty for noncompli-
.
26-58-111. Rate oftax. ance. [Effective until
26-58-114. Monthly reports and payment January 1, 2012.]
of tax by produce—rs, pri- 26-58-114. Reports andpaymentoftaxby
mary processors Can- produ—cers, primaryproces-
cellation of permit upo—n sors Cancellationofper-
cessation of business mit upon cessation ofbusi-
TAXATION
SECTION. — SECTION.
ness Penalty for 26-58-119. Procedure upon failure to file
noncompliance. [Effective reports or pay tax—, filing
January 1, 2012.] inaccur—ate reports Pen-
26-58-115. Reports and payment due alties Subpoenas. [Ef-
from producer actually fective until January 1,
severing or—from primary 2012.]
processor Methods of 26-58-119. Procedure upon failure to file
—accPuemnuallattyinfgortanxonpcaoymmpelnit- reports or pay tax—, filing
ance. [EffectiveJanuary 1, ialntaicecsur—ateSruebppooretnsas.P[eEnf--
2012.]
26-58-116. Purcmheansetrso'f rteapxor—ts Paenndalptaiye-s 26-58-124. DistfreicbtuivteioJnanoufasreyve1r,a2n0c1e2.t]ax
generally.
for noncompliance. [Effec-
tive until January 1, 26-58-127. Cost recovery periods for new
discovery gas and high-
2012.]
26-58-116. Purchasers' repor—ts and pay- cost gas.
ment of tax Penalties 26-58-128. Determination of new discov-
for noncompliance. [Effec- ery gas, high-cost gas, or
tive January 1, 2012.] marginal gas.
26-58-117. Responsibility for filing 26-58-129. Natural gas severance tax
monthlyreports. [Effective payment, apportionment
until January 1, 2012.] of severance tax between
26-58-117. Responsibility for filing re- royalty owner and pro-
ports. [Effective January ducer, and authority for
1, 2012.] rulemaking.
Effective Dates. Acts 2008 (1st Ex. line, and the fact that funds forhighways
Sess.), Nos. 4 and 5, § 12: Apr. 2, 2008. are generated from a flat per-gallon tax,
Emergency clause provided: "It is found the increasing use of more fuel-efficient
and determined by the GeneralAssembly vehicles has caused a condition in which
that state and local roads and highways revenue for roads and highways has not
are in need of substantial expansion, kept pace with the wear and tear caused
maintenance and repair, and that addi- by vehicular use. It is further found and
tionalfundingis necessarytoaddressthis determined that immediate enactment of
need. Itis alsofoundanddeterminedthat this bill is necessary to provide adequate
increasing development and exploitation time for various administrative agencies
of natural gas resources in the Fay- ofstate government to prepare the neces-
etteville Shale Play and in other areas of sary reporting forms and instructions, to
this state has significantly increased the educate taxpayers responsible for paying
burden and wear and tear on state and the additional taxes levied herein, and
local roads and highway, further exacer- take other steps necessary for the proper
bating the need for maintenance and re- implementation and administration of
pair. It is also found and determined that this act. Therefore, the GeneralAssembly
previous surpluses in state revenue have hereby finds and declares that an emer-
been largely spent to improve public edu- gencyexists,pursuanttoArticleV, § 38of
cation and educational facilities in this the Arkansas Constitution, and this Act,
state, aswas requiredbythe Constitution beingnecessaryfortheimmediatepreser-
as interpreted by the Arkansas Supreme vation of the public peace, health and
Court in the Lake View case and addi- safety, shallbeinfullforce andeffectfrom
tional revenues must be generated from and after January 1, 2009."
other sources to address the needs ofour Acts 2009, No. 145, § 5: Feb. 12, 2009.
roads and highways. It is further found Emergency clause provided: "It is found
and determined that due to recent and and determined by the GeneralAssembly
dramatic increases in the price of gaso- ofthe State ofArkansas that natural gas
3 SEVERANCE TAXES 26-58-101
is a unique resource that cannot be re- on: (1) The date of its approval by the
ported accurately under the existing Ian- Governor; (2) If the bill is neither ap-
guage oftheArkansas Code. This actwill proved nor vetoed by the Governor, the
alleviatethereportingproblemscurrently expiration of the period of time during
burdeningthe state and provide the state which the Governor may veto the bill; or
with more accurate information. There- (3) if the bill is vetoed by the Governor
fore, anemergencyisdeclaredtoexistand and the veto is overridden, the date the
this act being immediately necessary for last house overrides the veto."
the preservation of the public peace, Actg 2(m No 2?8 § ?. Jan x 2Q12
health, and safety shall become effective
26-58-101. Definitions.
As used in this subchapter:
(1) "Acquired", when used in reference to the severance tax on
timber, means the time when timber is first weighed or measured by a
primary processor after severance;
(2) "Completion" or "completed" means the act of making a well
capable ofproducing gas;
(3) "Conventional gas well" means any gas well that is not classified
as a high-cost gas well;
(4) "Date offirst production", when used in reference to a particular
gas well, means the first day in the month that the gas well produces
natural gas for sale;
(5) "Director" means the Director ofthe Department ofFinance and
Administration or any ofhis or her duly appointed deputies or agents;
(6) "High-cost gas" means natural gas that is:
(A) Produced ,from any gas well completed within a shale forma-
tion, including, but not limited to, the Fayetteville Shale, the Wood-
ford Shale, the Moorefield Shale, and the Chattanooga Shale forma-
tions, or their stratigraphic equivalents, as described in published
stratigraphic nomenclature recognized by the Arkansas Geological
Survey;
(B) Produced from any gas well in which the production is from a
completion that is located at a depth of more than twelve thousand
five hundred feet (12,500 ft.) below the surface ofthe earth, where the
term "depth" means the length ofthe maximum continuous drilling
stringofdrill pipe used between the drill bitface and the drillingrig's
kelly bushing;
(C) Produced from a tight gas formation;
(D) Produced from geopressured brine; or
(E) Occluded natural gas produced from coal seams;
(7) "High-cost gas well" means any gas well that is completed as a
well capable ofproducing high-cost gas;
(8)(A) "Marginal gas", when used in reference to a conventional gas
well, means all natural gas produced from the conventional gas well
beginning on the date the conventional gas well is incapable of
producing more than two hundred fifty (250) Mcf(one thousand cubic
26-58-101 TAXATION 4
feet) per day, as determined by the Director of the Oil and Gas
Commission using the current wellhead deliverability rate method-
ology utilized by the Oil and Gas Commission, during the calendar
month for which the severance tax report is filed.
(B) "Marginal gas", when used in reference to a high-cost gas well,
means all natural gas produced from the high-cost gas well beginning
on the date the high-costgas well is incapable ofproducingmore than
one hundred (100) Mcf (one thousand cubic feet) per day, as deter-
mined by the Director of the Oil and Gas Commission using the
current wellhead deliverability rate methodology utilized by the Oil
and Gas Commission, during the calendar month for which the
severance tax report is filed.
(C) "Marginal gas" includes production from all zones and multi-
lateral branches at a single well without regard to whether the
production is separately metered.
(D) "Marginal gas" does not include gas produced from:
A
(i) high-cost gas well during the thirty-six-month period pro-
vided in § 26-58-127(b)(l);
(ii) Ahigh-cost gas well during any allowed extension provided in
§ 26-58-127(b)(2); or
(iii) Anew discovery gas well duringthe twenty-four-month period
provided in § 26-58-127(a);
(9) "Marginal gas well" means any gas well that produces or is
capable ofproducing marginal gas, as determined bythe Director ofthe
Oil and Gas Commission using the current wellhead deliverability rate
methodology utilized by the Oil and Gas Commission;
(10) "Market value", when used in reference to the rate ofseverance
tax on natural gas, means the producer's actual cash receipts from the
sale of natural gas to the first purchaser less the actual costs to the
producer ofdehydrating, treating, compressing, and delivering the gas
to the purchaser;
(11) "Natural resources" means all natural products of the soil or
waterofArkansas including, butnotlimited to, asphalt, barite, bauxite,
chalk, chert, clay, cinnabar, coal, diamonds, fuller's earth, natural gas,
granite, gravel, gypsum, iron, lead ore, lignite, limestone, manganese
and manganiferous ores, marble, marl, mussel shells, novaculite, oil,
ochre, pearls and other precious stones, phosphate, salt, sand, shale,
slate, shells, stone and stone products, sulphur, titanium ore, and zinc
ore;
(12) "New discovery gas" means natural gas that is produced from a
new discovery gas well;
(13) "New discovery gas well" means any conventional gas well that
is completed as a well capable ofproducing gas;
(14) "Payout" means the date the cumulative working interest rev-
enues from a high-cost gas well equal the sum of:
(A) All drilling and completion costs incurred in connection with
the high-cost gas well; and
(B) All operating costs incurred or accrued in connection with the
operation ofthe high-cost gas well during the period ofcost recovery;
5 SEVERANCE TAXES 26-58-101
(15) "Point ofseverance" means the place at which transportation of
timber or natural resources, excludingnatural gas, has been or is about
to be commenced for use or processing after being severed;
(16) "Primary processor" means any person, firm, corporation, or
other entity engaged in business as a sawmill, chipper mill, stud mill,
square mill, plywood orveneermill, whole tree chippingmill, post, pole,
or piling plant, charcoal plant, processed board mill, bolt working mill,
pulp mill, planing or surfacing mill, or other mill or facility where
timber first undergoes any processing after harvesting;
(17) "Producer" means any person, firm, receiver, or other fiduciary,
corporation, or association, who or which engages in the business of
severing natural resources or timber;
(18) "Purchaser" means any person, firm, receiver, or other fiduciary,
corporation, or association, consignor, agent, or other dealer, by what-
ever name called, who or which acquires title outright or conditionally
to any interest in severed natural resources or timber;
(19)(A) "Sever", "severed", or "severing" mean natural resources cut,
mined, dredged, or otherwise taken or removed for commercial
purposes from the soil or water.
(B) However, "sever", "severed", or "severing" as defined in this
subdivision (19) do not apply to any natural gas returned to any
formation, in recycling, repressuring, pressure maintenance opera-
tion, or other operation, for the production ofoil or any other liquid
hydrocarbon.
(C) Further, "sever", "severed", or "severing" as defined in this
subdivision (19) do not applyto anyhydrocarbons in gaseous orliquid
form that are burned, used, consumed, or otherwise employed in oil
and gas operations, including, but not limited to, secondary recovery
operations and fuel for engines in the same leasehold, drilling, or
production unit or unit area ofa unitized reservoir from which such
hydrocarbons are produced;
(20) "Tight gas formation" means any natural gas bearing formation
that:
(A) Has previously been determined by Oil and Gas Commission
orders or field rules to be a low permeability formation, including:
(i) Booneville and Chismville-OR# 84-2003-07;
(ii) Gragg-OR# 89-2004-07;
(hi) Waveland-OR# 86-2007-07;
(iv) Rich Mountain-OR# 304-2006-09;
(v) Mansfield-OR# 28-2003-03; and
(vi) Witcherville and Excelsior-OR# 103-2005-07;
(B) Is determined by the Director ofthe Oil and Gas Commission
to have an estimated in situ permeability ofone-tenth milliDarcy (0.1
mD) or less; or
(C) Is determined to be a tight gas formation by field rules, general
rules, ororders issuedbythe Directorofthe Oil and Gas Commission;
(21) "Timber" means either softwood or hardwood species of trees
suitable for use as sawlogs, pulpwood, veneerbolts orbillets, stave bolts
26-58-111 TAXATION
or billets, and splits, handle and other bolts or billets including
chemical wood, cross ties, posts, poles, piling, chips, charcoal, or any
now known or hereafter discovered use ofwood or wood pulp;
(22) "Time ofseverance" means the date on which transportation of
timber or natural resources, excludingnatural gas, has been or is about
to be commenced for their use or processing after being severed; and
(23) "Transporter" means any person, firm, receiver, or other fidu-
ciary, corporation, or association, who or which transports severed
natural resources or timber to any point within, across, or out of the
State ofArkansas.
History. Acts 1947, No. 136, § 1; 1949, "(4) All natural gas that is not defined
No. 16, § 1; 1973, No. 493, § 1; 1983, No. as high-cost gas, marginal gas, or new
254, § 1; A.S.A. 1947, § 84-2101; Acts discovery gas.
2008 (1st Ex. Sess.), No. 4, § 6; 2008 (1st "(d) To increase the severance tax rate,
Ex. Sess.), No. 5, § 6. the GeneralAssembly used the method of
A.C.R.C. Notes. The 2008 (1st Ex. levyingaspecifictaxrateoneachcategory
iSseslsa.t)i,veNfoisn.di4ngasnadn5d,i§nt1e,ntp.rovided: "Leg- tsohatthawtoualndyhfauvteurethleegeifsfleacttivoefeinncarcetamseinntg
(a) The General Assembly has deter- the rate ofseverance tax on any ofthose
categories of natural gas as defined by
mined that the severance tax rate on
natural gas should be increased and that § 26-58-101 will also be subject to the
three-fourthsvote requirementofAmend-
there should be different rates oftax for ment 19 oftheArkansas Constitution."
different categories ofnatural gas. Amendments. The 2008 (1stEx. Sess.)
"(b) Amendment 19 of the Arkansas amendmentbyidenticalactsNos. 4and5,
Constitutionrequiredthisacttobepassed effective January 1, 2009, inserted
byatleastthree-fourthsofthemembersof present (2) through (4), (6) through (10),
the Senate and at least three-fourths of (12) through (14), and (20) and redesig-
the members ofthe House ofRepresenta- nated the remaining subdivisions accord-
tives. ingly;in(15)and(22),inserted"timberor"
"(c) In order to implement the increase and substituted "excluding natural gas"
in the severance tax rate, the General for "or timber"; substituted "(19)" for "(8)"
Assemblyhasidentifiedthefollowingfour in (19)(B) and (C); and, in (23), inserted
categories ofnatural gas, each as defined "severed" and substituted "to any" for
inArkansas Code § 26-58-101: "from the point ofseverance, or other."
"(1) High-cost gas; Effective Dates. Acts 2008 (1st Ex.
"(2) Marginal gas; Sess.), Nos. 4 and 5, § 6: Jan. 1, 2009, by
"(3) New discovery gas; and their own terms.
26-58-111. Rate of tax.
The severance tax is to be predicated upon the quantity severed and
at the following rates:
(1) On barite, bauxite, titanium ore, manganese and manganiferous
ores, zinc ore, and cinnabar, fifteen cents (15c0 per ton oftwo thousand
pounds (2,000 lbs.);
(2) On coal, lignite, and iron ore, two cents (2c0 per ton of two
thousand pounds (2,000 lbs.);
(3) On gypsum not used for manufacturing within Arkansas into
ultimate consumer's goods, or sold for manufacturing withinArkansas
into ultimate consumer's goods, and chemical grade limestone, silica
sand, and dimension stone, one and one-halfcents (lV^cO per ton oftwo
thousand pounds (2,000 lbs.);
7 SEVERANCE TAXES 26-58-111
(4) On crushed stone including, but not limited to, chert, granite,
slate, novaculite, and limestone, and on construction sand, gravel, clay,
chalk, shale, and marl, one cent (IgO per ton of two thousand pounds
(2,000 lbs.);
(5) On natural gas, the following percent ofthe market value ofthe
natural gas severed within the State ofArkansas:
(A) On new discovery gas, as denned in § 26-58-101(12), the
severance tax rate shall be one and one-half percent (1.5%) for the
time period provided in § 26-58-127(a);
(B) On high-cost gas, as denned in § 26-58-101(6), the severance
tax rate shall be one and one-halfpercent (1.5%) for the time periods
provided in § 26-58-127(b);
(C) On marginal gas, as denned in § 26-58-101(8), the severance
tax rate shall be one and one-quarter percent (1.25%); and
(D) On all natural gas that is not defined as new discovery gas,
high-cost gas, or marginal gas, the severance tax rate shall be five
percent (5%);
(6)(A) On oil, five percent (5%) ofthe market value at time and point
of severance.
(B) However, whenever the production of oil from a well which is
measured separately or from a group of wells which is measured
separately, including any well or wells that are utilized for the
injection ofsalt water or other effluents for pressure maintenance or
secondary recovery purposes, averages ten (10) barrels or less per
well per day during any calendar month, the privilege or license tax
on oil produced from that well or group ofwells during that month
shall be computed at the rate offour percent (4%) ofthe marketvalue
at time and point ofseverance.
(C) The Director ofthe Department ofFinance andAdministration
shall have the power to promulgate such reasonable rules and
regulations as shall be necessary to effectively enforce the foregoing
provisions;
(7) On timber, the tax shall be collected, reported, and remitted by
each primary processor and shall be computed on the weight of such
timber as determined at the last time the timber is weighed prior to
undergoing the first processing after severance thereofand shall be at
the following rates:
(A) On all pine timber, seventeen and eight-tenths cents (17.8c0
per ton oftwo thousand pounds (2,000 lbs.);
(B) On all other timber, twelve and five-tenths cents (12.5c1) per
ton oftwo thousand pounds (2,000 lbs.); and
(C)(i) If any primary processor of timber is unable to weigh the
timber as required herein because an approved weight scale is not
available, the primary processor shall use the following conversion
factors to convert other measurements oftimber to weight:
26-58-111 TAXATION 8
PRODUCT CONVERSION
FACTORS
SAWTIMBER:
Pine 16,000 Lbs./MBF Doyle
All Other 16,000 LbsVMBF Doyle
PULPWOOD:
Pine 5,000 Lbs./Cord-128 Cu. Ft.
All Other 6,000 Lbs./Cord-128 Cu. Ft.
POSTS OR POLES:
Less than 10' in length 30 Posts/Ton
POSTS OR POLES:
10'—16' in length 15 Posts/Ton
POLES OR PILING:
Greater than 16' in length 40 Lineal Ft./Ton
SPLIT CORDS 6,000 Lbs./Cord-128 Cu. Ft.
VENEER CORDS
5,000 Lbs./Cord-128 Cu. Ft.
HANDLE AND OTHER CORDS
6,000 Lbs./Cord-128 Cu. Ft.
CHEMICAL CORDS
6,000 Lbs./Cord-128 Cu. Ft.
WHOLE TREE CHIPS:
Pine 5,000 Lbs./Cord-128 Cu. Ft.
All Other 6,000 Lbs./Cord-128 Cu. Ft.
(ii) Ifthe above conversion factors are not appropriate for conver-
sion of any particular measurement of timber to weight, the director,
with the advice and approval of the Arkansas Forestry Commission,
shall develop an appropriate conversion procedure to produce equiva-
lent rates;
(8) On diamonds, fuller's earth, ochre, natural asphalt, native sul-
phur, salt, pearls and other precious stones, whetstone, novaculite, and
on all other natural resources, except gypsum, not otherwise specifi-
callyidentifiedunderthe severancetaxlaws ofthis state, exceptmussel
shells, five percent (5%) of the fair market value at the time of
severance;
(9) On salt water whose naturally dissolved components, or solutes,
are used as source raw materials for bromine and other products
derived from the same salt water used in the bromine production, two
dollars and forty-five cents ($2.45) per one thousand (1,000) barrels,
forty-two thousand United States gallons (42,000 U.S. gals.); and
(10)(A) Except as provided in subdivision (10)(B) of this section, on
all other natural resources not otherwise specifically identified under
the severance tax laws ofthis state, five percent (5%) ofthe market
value at time and point ofseverance.
(B)(i) Biomass used primarilyforthe purpose ofbiofuel production
is not subject to a severance tax.