Privilege Tax on Certain Offshore Production.

Ala. Code tit. 40, ch. 20, art. 1A

in effect

Ala. Code § 40-20-20 Definitions.

40-20-20. Definitions. In addition to the definitions contained in Section 40-20-1, which shall apply for purposes of this article, except to the extent there is a conflict with the definitions contained herein, the following definitions shall apply for the purposes of this article. (1) Gross Proceeds. The gross proceeds for a month shall be the sum of the month’s market proceeds and non-market proceeds. No adjustments or deductions may be taken from the market proceeds or the non-market proceeds in computing gross proceeds. (2) Market Proceeds. The market proceeds for a month shall be the sum of the amounts due under all market sales transactions during the month. The amount due under each market sales transaction shall be determined by multiplying the unit sales price by the volume of severed oil or gas sold in each transaction. (3) Market Sales Transaction. An agreement or contract for the sale of offshore production produced from depths greater than 8,000 feet below mean sea level that has been entered into by or on behalf of a producer or its related party and an unrelated party, regardless of the place of sale, regardless of any interim sales to parties that are not unrelated, and regardless of any processing, treating, or transportation done prior to the point of sale. (4) Non-Market Proceeds. The non-market proceeds for a month shall be the cash and other consideration that would have been due if all non-market taxable volumes for the month had been sold for the same unit sales price due under the market sales transactions occurring during that month, using weighted averages if two or more market sales transactions occurred during the month; provided, however, that if less than 10% by volume of the total taxable offshore production produced during a month is sold in market sales transactions, then the non-market proceeds shall be deemed to be the cash and other consideration, as reasonably determined by the department, that would have been generated if the non-market taxable volumes had been sold in a market sale transaction, considering the unit sales price for offshore production of like quality if such data is available; otherwise, considering published data from recognized market centers for trading oil and/or gas, in both cases adjusted for location and quality to the point at which the first market sale would likely have occurred. Taxpayers seeking to use the published selling prices in calculating their monthly non-market proceeds may request a determination from the department approving the market center data and the manner of making the calculations. The calculations must be consistent from month to month, except as approved by the department. (5) Non-Market Taxable Volumes. The non-market taxable volumes for a month shall be the total volumes of offshore production not disposed of pursuant to a market sales transaction, excluding volumes taken in-kind by other producers in accordance with Section 40-20-22(g). The total volumes include all offshore production used or consumed in operations, but do not include natural gas lawfully vented or flared in connection with the production, treatment, or processing of oil or gas in the State of Alabama, or natural gas lawfully injected into the earth for the purpose of lifting oil or gas in the State of Alabama. Provided, however, that if any gas so injected into the earth is sold for such purposes or injected into underground storage facilities as defined in Section 9-17-150 et seq., then the gas so sold or injected shall be included in the total non-market taxable volumes for the month. (6) Transportation Charges. The actual cash amount paid to an unrelated party by a producer or seller of severed gas for transporting pipeline quality gas to the point of a market sales transaction. Transportation charges may include amounts paid to a related party if the related party is a regulated entity operating an open access natural gas pipeline. The transportation charges are limited to the lesser of the actual fees paid or the maximum allowable firm transportation tariff amount approved by the Federal Energy Regulatory Commission, or other appropriate governmental authority. (7) Unit Sales Price. The total cash or other consideration due for each unit of offshore production, sold under the terms of a market sales transaction, including any and all premiums, bonuses, or other amounts received. If allowable actual transportation charges were paid by the producer or seller for transporting pipeline quality gas to the point of sale, the unit sales price may be adjusted to remove the transportation charge. No other adjustments or deductions may be taken from the actual amounts due in determining the unit sales price. (8) Unrelated Party. A person or entity with opposing economic interests to the producer or seller of severed oil or gas. No producer’s parent company, subsidiary company, sister company, or other company affiliated through common ownership of greater than 5% or control will be considered an unrelated party. In addition, no producer’s principal owners, management, members of their immediate families, or companies owned or controlled by any of them will be considered unrelated parties. (Act 2009-147, p. 284, §4.)

Ala. Code § 40-20-21 Computation of Privilege Tax.

40-20-21. Computation of Privilege Tax. The privilege tax levied by this chapter as it applies to offshore production from depths greater than 8,000 feet below mean sea level shall not be computed as a percentage of gross value at the point of production, as provided in Article 1, but shall be computed as a percentage of gross proceeds. The amount of the tax shall be computed at the rate of three and sixty-five one hundredths percent (3.65%) of the gross proceeds attributable to the offshore production. (Act 2009-147, p. 284, §4.)

Ala. Code § 40-20-22 Applicability; Payment of and Liability for Taxes; Reporting.

40-20-22. Applicability; Payment of and Liability for Taxes; Reporting. (a) The tax levied by this chapter and computed pursuant to Section 40-20-21 applies to all offshore production produced from depths greater than 8,000 feet below mean sea level, regardless of the method or place or timing of delivery or sale, or the manner or place of processing, or to whom sold, or by whom used, or the fact that the delivery, sale, or storage may be made at points outside the state, or the fact that processing or other preparation for sale, storage, or use occurs outside the state. It is the intent of this chapter that the tax is to be computed on the production of all offshore oil or gas in this state from depths greater than 8,000 feet below mean sea level, however the tax shall be computed only once on any given volume of such offshore production. (b) Natural gas produced by offshore production in the State of Alabama that is lawfully injected into oil or gas pools or reservoirs in the soil or beneath the soil or waters of the State of Alabama for the purpose of lifting oil or gas in the State of Alabama is exempt from this tax. However, if any such gas so injected into the earth is sold for such purposes or injected into underground storage facilities as defined in Section 9-17-150 et seq., then the gas so sold or injected shall not be exempt from this tax. Natural gas lawfully vented or flared in connection with the production, treatment, or processing of oil or gas in the State of Alabama is exempt from this tax. (c) The tax levied by this chapter and computed pursuant to Section 40-20-21 applies to the producers of offshore production in the proportion of their ownership at the time of severance, including what is known as the royalty interest. The tax shall be paid by the person in charge of the production operations, who is hereby authorized, empowered, and required to deduct from any amount due to producers of offshore production the proportionate amount of the tax levied by this chapter before making payments to the producers. (d) When any person in charge of production operations shall use or dispose of the offshore production for fuel or any other purpose, he or she shall withhold the tax imposed by this chapter. If he or she is required to pay other interest holders, he or she is authorized, empowered, and required to deduct from any amounts due them the amount of tax levied and due under this chapter before making any payment to them. (e) Every person in charge of production operations by which offshore production is severed from the soil or waters, or from beneath the soil or waters, of the State of Alabama who fails to deduct and withhold, as required by this section, the amount of tax from the sale or purchase price, when the offshore production is sold or purchased under contract or agreement, or on the open market, or otherwise, shall be liable to the state for the full amount of taxes, interest, and penalties due the state. The department shall proceed to collect the tax from the person in charge of production operations, under this chapter, as if he or she were the producer of the offshore production. (f) The person in charge of the production operations shall report to the department the total monthly volumes and gross proceeds attributable to all offshore production produced during the month, including amounts attributable to royalty interests. If any gross proceeds are attributable to a producer who is exempt from tax, the operator shall be entitled to list the gross proceeds attributable to the exempt producer on his or her monthly tax return and subtract the exempt producer’s gross proceeds from the total gross proceeds in calculating the gross proceeds for which he or she is liable for the tax. A producer claiming an exemption from the tax shall apply to the department for the exemption in such manner as the department may reasonably require, and the department shall inform the producer and the person in charge of production operations of its determination. (g) A person in charge of the production operations who delivers offshore production to a producer for marketing or otherwise disposing of its own oil or gas may report to the department the total monthly volumes delivered to each take-in-kind producer. The operator shall then be entitled to exclude the take-in-kind producer’s volumes from its calculation of the total non-market taxable volumes and from the calculation of the monthly gross proceeds for which he or she is liable for the tax. The operator shall report any other information about the take-in-kind producer as the department may reasonably require. The take-in-kind producer shall be responsible for reporting and remitting the tax levied by this chapter on the take-in-kind volumes. (h) The tax computed under this article shall become due and payable in the same manner as the tax computed under Article 1 of this chapter and the tax shall constitute a first lien upon the offshore production so produced when in the possession of the producer or any purchaser of the oil or gas. In the event the person in charge of production operations fails to pay the tax, then the department may proceed against the producer or the purchaser to collect the tax. (Act 2009-147, p. 284, §4.)

Ala. Code § 40-20-23 Allocation and Distribution of Taxes.

40-20-23. Allocation and Distribution of Taxes. (a) Ninety percent (90%) of the net amount of taxes collected by the department on oil or gas produced from submerged lands which are not deemed to be onshore lands for allocation and distribution purposes pursuant to subsections (d) or (e) shall be deposited to the State General Fund. The remaining ten percent (10%) of the taxes collected on oil or gas produced from submerged lands which are not deemed to be onshore lands for allocation and distribution purposes shall be allocated and distributed by the Comptroller to the county in which the oil or gas was produced for county purposes to be expended at the discretion of the county governing body. (b) The net amount of taxes collected by the department pursuant to this article on oil or gas produced from submerged lands which are deemed to be onshore lands for allocation and distribution purposes pursuant to subsections (d) or (e) shall be allocated and distributed pursuant to Section 40-20-8, as if it was collected pursuant to Article 1 of this chapter on oil or gas produced from onshore lands. (c) Of the taxes herein levied and collected by the department on oil or gas produced from submerged lands which are deemed to be onshore lands for allocation and distribution purposes pursuant to subsections (d) or (e), sixty-five percent (65%) of the net amount of the taxes collected shall be allocated and distributed as if the taxes were levied and collected at the rate of four percent (4%), for purposes of the allocations and distributions required under Section 40-20-8. The remaining thirty-five percent (35%) of the taxes collected on oil or gas produced from submerged lands which are deemed to be onshore lands for allocation and distribution purposes shall be allocated and distributed pursuant to Section 40-20-8, as if the taxes were levied and collected at a rate other than four percent (4%). (d) For the purposes of this section, when part of the property within the drilling or production unit or within the unit area for any producing wells consists of submerged lands and part consists of lands other than submerged lands (herein called onshore lands), all of the following shall apply: (1) Only that portion of production of oil or gas or both from the wells allocated under or pursuant to an order of the State Oil and Gas Board to the submerged lands shall be deemed to have been produced from submerged lands, regardless of where the actual wells from which the production was obtained are located. (2) The portion of production allocated under or pursuant to an order of the State Oil and Gas Board to the onshore lands shall be deemed to have been produced from a well located on the onshore lands to which the production is allocated, and the portion of production allocated under or pursuant to an order of the State Oil and Gas Board to any onshore lands located within the police jurisdiction or the corporate limits of any municipality shall be deemed to have been produced from a well located within the corporate limits or police jurisdiction. (3) If, because of common ownership or otherwise, no specific portion of the production from the wells has been separately allocated under or pursuant to an order of the State Oil and Gas Board to any or all of the onshore lands located within the drilling or production unit or within a designated tract in the unit area, then, for the purposes of this section, a portion of the production shall be deemed to have been allocated under or pursuant to an order of the State Oil and Gas Board to the onshore lands in question, such portion to be in the proportion that the acreage of the onshore land to which no specific portion of the production has been separately allocated bears to the total acreage included within the unit or designated tract, whichever is applicable. (4) Any production not allocated to or deemed to have been allocated to the onshore lands shall be deemed to have been allocated under or pursuant to an order of the State Oil and Gas Board to the submerged lands. (e) Anything in this section to the contrary notwithstanding, onshore lands shall mean all lands that are not submerged lands as defined in this chapter. Provided, however, if any submerged lands are located within the police jurisdiction or corporate limits of any municipality, those submerged lands shall, for the purposes of this section, be defined as, and deemed to be, onshore lands and not submerged lands. (f) This section shall apply only to the allocation and distribution of taxes and shall not apply to the levy and collection of taxes. Nothing contained in this section shall be construed to affect in any way Section 40-20-2 or Section 40-20-21. (Act 2009-147, p. 284, §4.)

Source: Alabama Legislature (alison.legislature.state.al.us)URL: https://alison.legislature.state.al.us/code-of-alabamaFetched: 10/20/2026