DAR File No. 40421
This rule was published in the June 1, 2016, issue (Vol. 2016, No. 11) of the Utah State Bulletin.
Tax Commission, Property Tax
Section R884-24P-10
Taxation of Underground Rights in Land That Contains Deposits of Oil or Gas Pursuant to Utah Code Ann. Sections 59-2-201 and 59-2-210
Notice of Proposed Rule
(Amendment)
DAR File No.: 40421
Filed: 05/12/2016 10:21:05 AM
RULE ANALYSIS
Purpose of the rule or reason for the change:
The proposed amendment corrects a long-standing error in the section and is nonsubstantive in nature.
Summary of the rule or change:
The proposed amendment codifies long-standing practice by replacing the phrase "will shall not" with "may not". This corrects an error in the rule that had been sent to the Office of Administrative Rules (OAR) when the phrase "will not be allowed", which was intended to read "shall not be included", was inadvertently sent to OAR as "will shall not be included". Finally, the proposed amendment makes technical changes.
State statutory or constitutional authorization for this rule:
- Section 59-2-201
- Section 59-2-210
Anticipated cost or savings to:
the state budget:
None--Property tax revenues are local revenues.
local governments:
None--The proposed amendment is nonsubstantive in nature.
small businesses:
None--The proposed amendment is nonsubstantive in nature.
persons other than small businesses, businesses, or local governmental entities:
None--The proposed amendment is nonsubstantive in nature.
Compliance costs for affected persons:
None--The proposed amendment corrects an error in the rule. This correction matches the long-standing practice.
Comments by the department head on the fiscal impact the rule may have on businesses:
No fiscal impact--This is a nonsubstantive technical amendment.
Rebecca Rockwell, Commissioner
The full text of this rule may be inspected, during regular business hours, at the Division of Administrative Rules, or at:
Tax CommissionProperty Tax
210 N 1950 W
SALT LAKE CITY, UT 84134
Direct questions regarding this rule to:
- Christa Johnson at the above address, by phone at 801-297-3901, by FAX at 801-297-3907, or by Internet E-mail at [email protected]
Interested persons may present their views on this rule by submitting written comments to the address above no later than 5:00 p.m. on:
07/01/2016
This rule may become effective on:
07/08/2016
Authorized by:
Rebecca Rockwell, Commissioner
RULE TEXT
R884. Tax Commission, Property Tax.
R884-24P. Property Tax.
R884-24P-10. Taxation of Underground Rights in Land That Contains Deposits of Oil or Gas Pursuant to Utah Code Ann. Sections 59-2-201 and 59-2-210.
[A.](1) Definitions.
[1.](a) "Person" is as defined in Section 68-3-12.
[2.](b) "Working interest owner" means the owner of an
interest in oil, gas, or other hydrocarbon substances burdened with
a share of the expenses of developing and operating the
property.
[3.](c) "Unit operator" means a person who operates
all producing wells in a unit.
[4.](d) "Independent operator" means a person
operating an oil or gas producing property not in a unit.
[5.](e) One person can, at the same time, be a unit operator, a
working interest owner, and an independent operator and must comply
with all requirements of this rule based upon the person's
status in the respective situations.
[6.](f) "Expected annual production" means the future
economic production of an oil and gas property as estimated by the
Property Tax Division using decline curve analysis. Expected annual
production does not include production used on the same well,
lease, or unit for the purpose of repressuring or pressure
maintenance.
[7.](g) "Product price" means:
[a)](i) Oil: The weighted average posted price for the calendar
year preceding January 1, specific for the field in which the well
is operating as designated by the Division of Oil, Gas, and Mining.
The weighted average posted price is determined by weighing each
individual posted price based on the number of days it was posted
during the year, adjusting for gravity, transportation, escalation,
or deescalation.
[b)](ii) Gas:
[(1)](A) If sold under contract, the price shall be the stated
price as of January 1, adjusted for escalation and
deescalation.
[(2)](B) If sold on the spot market or to a direct end-user, the
price shall be the average price received for the 12-month period
immediately preceding January 1, adjusted for escalation and
deescalation.
[8.](h) "Future net revenue" means annual revenues
less costs of the working interests and royalty interest.
[9.](i) "Revenue" means expected annual gross revenue,
calculated by multiplying the product price by expected annual
production for the remaining economic life of the property.
[10.](j) "Costs" means expected annual allowable costs
applied against revenue of cost-bearing interests:
[a)](i) Examples of allowable costs include management salaries;
labor; payroll taxes and benefits; workers' compensation
insurance; general insurance; taxes (excluding income and property
taxes); supplies and tools; power; maintenance and repairs; office;
accounting; engineering; treatment; legal fees; transportation;
miscellaneous; capital expenditures; and the imputed cost of self
consumed product.
[b)](ii) Interest, depreciation, or any expense not directly
related to the unit [will shall]may not be included as allowable costs.
[11.](k) "Production asset" means any asset located at
the well site that is used to bring oil or gas products to a point
of sale or transfer of ownership.
[B.](2) The discount rate shall be determined by the Property
Tax Division using methods such as the weighted cost of capital
method.
[1.](a) The cost of debt shall consider market yields. The cost
of equity shall be determined by the capital asset pricing model,
risk premium model, discounted cash flow model, a combination
thereof, or any other accepted methodology.
[2.](b) The discount rate shall reflect the current yield
requirements of investors purchasing similar properties, taking
into consideration income, income taxes, risk, expenses, inflation,
and physical and locational characteristics.
[3.](c) The discount rate shall contain the same elements as the
expected income stream.
[C.](3) Assessment Procedures.
[1.](a) Underground rights in lands containing deposits of oil
or gas and the related tangible property shall be assessed by the
Property Tax Division in the name of the unit operator, the
independent operator, or other person as the facts may warrant.
[2.](b) The taxable value of underground oil and gas rights
shall be determined by discounting future net revenues to their
present value as of the lien date of the assessment year and then
subtracting the value of applicable exempt federal, state, and
Indian royalty interests.
[3.](c) The reasonable taxable value of productive underground
oil and gas rights shall be determined by the methods described in
[C.2. of this rule]Subsection (3)(b) or such other valuation method that the
Tax Commission believes to be reasonably determinative of the
property's fair market value.
[4.](d) The value of the production assets shall be considered
in the value of the oil and gas reserves as determined in [C.2. above]Subsection (3)(b). Any other tangible property shall be
separately valued at fair market value by the Property Tax
Division.
[5.](e) The minimum value of the property shall be the value of
the production assets.
[D.](4) Collection by Operator.
[1.](a) The unit operator may request the Property Tax Division
to separately list the value of the working interest, and the value
of the royalty interest on the Assessment Record. When such a
request is made, the unit operator is responsible to provide the
Property Tax Division with the necessary information needed to
compile this list. The unit operator may make a reasonable estimate
of the ad valorem tax liability for a given period and may withhold
funds from amounts due to royalty. Withheld funds shall be
sufficient to ensure payment of the ad valorem tax on each
fractional interest according to the estimate made.
[a)](i) If a unit operating agreement exists between the unit
operator and the fractional working interest owners, the unit
operator may withhold or collect the tax according to the terms of
that agreement.
[b)](ii) In any case, the unit operator and the fractional
interest owner may make agreements or arrangements for withholding
or otherwise collecting this tax. This may be done whether or not
that practice is consistent with the preceding paragraphs so long
as all requirements of the law are met. When a fractional interest
owner has had funds withheld to cover the estimated ad valorem tax
liability and the operator fails to remit such taxes to the county
when due, the fractional interest owner shall be indemnified from
any further ad valorem tax liability to the extent of the
withholding.
[c)](iii) The unit operator shall compare the amount withheld to
the taxes actually due, and return any excess amount to the
fractional interest owner within 60 days after the delinquent date
of the tax. At the request of the fractional interest owner the
excess may be retained by the unit operator and applied toward the
fractional interest owner's tax liability for the subsequent
year.
[2.](b) The penalty provided for in Section 59-2-210 is intended
to ensure collection by the county of the entire tax due. Any unit
operator who has paid this county imposed penalty, and thereafter
collects from the fractional interest holders any part of their tax
due, may retain those funds as reimbursement against the penalty
paid.
[3.](c) Interest on delinquent taxes shall be assessed as set
forth in Section 59-2-1331.
[4.](d) Each unit operator may be required to submit to the
Property Tax Division a listing of all fractional interest owners
and their interests upon specific request of the Property Tax
Division. Working interest owners, upon request, shall be required
to submit similar information to unit operators.
KEY: taxation, personal property, property tax, appraisals
Date of Enactment or Last Substantive Amendment: [January 1], 2016
Notice of Continuation: January 3, 2012
Authorizing, and Implemented or Interpreted Law: Art. XIII, Sec 2; 9-2-201; 11-13-302; 41-1a-202; 41-1a-301; 59-1-210; 59-2-102; 59-2-103; 59-2-103.5; 59-2-104; 59-2-201; 59-2-210; 59-2-211; 59-2-301; 59-2-301.3; 59-2-302; 59-2-303; 59-2-303.1; 59-2-305; 59-2-306; 59-2-401; 59-2-402; 59-2-404; 59-2-405; 59-2-405.1; 59-2-406; 59-2-508; 59-2-514; 59-2-515; 59-2-701; 59-2-702; 59-2-703; 59-2-704; 59-2-704.5; 59-2-705; 59-2-801; 59-2-918 through 59-2-924; 59-2-1002; 59-2-1004; 59-2-1005; 59-2-1006; 59-2-1101; 59-2-1102; 59-2-1104; 59-2-1106; 59-2-1107 through 59-2-1109; 59-2-1113; 59-2-1115; 59-2-1202; 59-2-1202(5); 59-2-1302; 59-2-1303; 59-2-1308.5; 59-2-1317; 59-2-1328; 59-2-1330; 59-2-1347; 59-2-1351; 59-2-1365; 59-2-1703
Additional Information
More information about a Notice of Proposed Rule is available online.
The Portable Document Format (PDF) version of the Bulletin is the official version. The PDF version of this issue is available at https://rules.utah.gov/publicat/bull-pdf/2016/b20160601.pdf. The HTML edition of the Bulletin is a convenience copy. Any discrepancy between the PDF version and HTML version is resolved in favor of the PDF version.
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For questions regarding the content or application of this rule, please contact Christa Johnson at the above address, by phone at 801-297-3901, by FAX at 801-297-3907, or by Internet E-mail at [email protected]. For questions about the rulemaking process, please contact the Division of Administrative Rules.