Section 40-20-14 Credits against tax for manufacturers of direct reduced iron.
Section 40-20-14
Credits against tax for manufacturers of direct reduced iron.
(a) Findings. The Legislature finds and declares as follows:
(1) Certain industries ought to be encouraged to consume gas produced in the state by permitting producers of gas to obtain a credit against severance tax to the extent that the value of such credit results in the reduction of the cost of the gas to such industries.
(2) The granting of such a credit will encourage certain industries that are major consumers of gas to purchase gas from producers or intermediate suppliers that extract or purchase gas from wells in Alabama subject to the severance tax.
(3) Due to the fungible nature of gas and the commingling of gas from various sources that typically occurs in the transportation of gas through a network of shared pipelines, a DRI manufacturer should not be required to trace gas from its source in order to benefit from a cost reduction based on the credit, provided that it can be shown that at least the amount of gas with respect to which the credit is granted has been produced by the taxpayer, at least the amount of gas with respect to which the credit is granted is supplied to the DRI manufacturer, and in the case of an intermediate supplier, that the intermediate supplier has purchased at least the amount of gas with respect to which the credit is granted from the taxpayer and the intermediate supplier has sold at least the amount of gas with respect to which the credit is granted to the DRI manufacturer.
(4) 7.4% of the deemed taxable value of the gas is a reasonable approximation of the severance tax that is levied, collected and distributed to the General Fund of the state, being the severance tax levied by Section 9-17-25 plus the severance tax levied by this article on gas produced from wells on submerged lands.
(b) Definitions. The following terms, as used in this section, are defined as stated below:
(1) CAPITAL COST. The cost for federal income tax purposes of the DRI plant determined upon plant completion, as certified by the DRI manufacturer to the department, determined without regard to depreciation or amortization of any kind.
(2) DEEMED TAXABLE VALUE. The gas amounts, as shown on the monthly tax forms O&G Production-2 or O&G Offshore-2, in the column labeled “PRODUCER'S NET TAXABLE VALUE” divided by the gas amounts in the column labeled “PRODUCER'S LIABILITY-VOLUME.”
(3) DRI. Direct reduced iron, being iron produced from iron ore by chemical reaction with gas.
(4) DRI MANUFACTURER. A manufacturer of DRI at a DRI plant in a process utilizing gas, provided that:
a. As of the date of plant completion, the manufacturing process takes place on a site owned by the Alabama State Docks Department;
b. As of the date of plant completion, the DRI manufacturer has engaged the Alabama State Docks Department to provide cargo handling services with respect to iron ore that provides the raw material for the production of the DRI; and
c. The production of DRI in the state by the DRI plant commenced no earlier than October 1, 1997.
(5) DRI PLANT. The land, buildings, facilities, equipment, leasehold improvements, and other tangible property, real or personal, owned or leased by the DRI manufacturer for the purpose of producing DRI.
(6) GAS. All natural gas, including casinghead gas, and all other hydrocarbons not defined as oil in Section 40-20-1(4).
(7) GAS CONSUMPTION VOLUME. For any reporting period, an amount, stated in mcf, equal to the lesser of the following:
a. The amount of gas consumed by the DRI manufacturer at the DRI plant, as certified by the DRI manufacturer to the taxpayer, or
b. Either
1. If gas is supplied by the taxpayer to the DRI manufacturer, the amount of gas supplied by the taxpayer to the DRI manufacturer, or
2. If gas is supplied by an intermediate supplier to the DRI manufacturer, the lesser of
(i) the amount of gas sold by the taxpayer to the intermediate supplier, or
(ii) the amount of gas supplied by the intermediate supplier to the DRI manufacturer.
(8) INTERMEDIATE SUPPLIER. Any person that a. purchases gas from a taxpayer or from another intermediate supplier that in turn purchased from a taxpayer and b. supplies gas to a DRI manufacturer.
(9) MCF. The volume of gas, measured in units of one thousand cubic feet, using the same temperature, pressure, and heating value as the gas reported on the producer's monthly severance tax returns.
(10) NET PRESENT VALUE. Discounted present value, determined as of plant completion, at an interest rate of 6% per annum, of reductions in the cost of gas as described in subdivision (8) of subsection (e) realized by a DRI manufacturer with respect to a DRI plant.
(11) PERSON IN CHARGE OF PRODUCTION OPERATIONS. The person in charge of the production operations, as such term is used in Section 40-20-3.
(12) PLANT COMPLETION. The date, as certified to the department by the DRI manufacturer, that a DRI plant is completed.
(13) REPORTING PERIOD. The period of time with respect to which severance taxes are calculated, returns are filed, and severance taxes are periodically paid, being each calendar month under current law.
(14) SEVERANCE TAX. The annual privilege tax levied by Section 40-20-2 on the production or severance of gas and the tax levied by Section 9-17-25 on natural gas produced for sale, transport, storage, profit or for use from any well or wells in the state.
(15) SEVERANCE TAX CREDIT. For any reporting period, 7.4% of the deemed taxable value multiplied by the gas consumption volume.
(16) TAXPAYER. Any producer or person in charge of production operations or any other person that is otherwise required to deduct, withhold, pay, or account for severance tax on gas produced and sold to an intermediate supplier or a DRI manufacturer, provided that with respect to any reporting period, such taxpayer:
a. Is obligated to pay severance tax, or would be so obligated but for the provisions of this section; and
b. Has entered into an agreement with a DRI manufacturer and/or an intermediate supplier, if applicable, to reduce the cost of gas sold by the taxpayer to the DRI manufacturer or, if applicable, the intermediate supplier by an amount equal to the severance tax credit for such reporting period.
(c) Credits. With respect to any DRI plant owned by a DRI manufacturer, a taxpayer shall be allowed a credit against severance tax otherwise owed with respect to the applicable reporting period equal to the severance tax credit. With respect to any DRI plant, this credit shall commence on the later of (1) June 1, 1998, or (2) plant completion, and shall continue until the net present value of the cost reductions of gas to the DRI manufacturer described in subdivision (8) of subsection (e) shall equal the lesser of (1) 4% of the capital cost of the DRI plant or (2) four million seven hundred thousand dollars ($4,700,000).
(d) Certificate. Upon request by a DRI manufacturer, the department shall provide the DRI manufacturer with a certificate, which shall be numbered and shall state (1) the lesser of a. 4% of the capital cost of the DRI plant or b. four million seven hundred thousand dollars ($4,700,000), as appropriate, as certified to the department by the DRI manufacturer, and (2) the completion date of the DRI plant certified by the DRI manufacturer to the department.
(e) Returns. Any taxpayer claiming the severance tax credit for a reporting period shall file a schedule with its severance tax returns for such reporting period stating the following:
(1) The number assigned by the department to the DRI plant.
(2) The name of the DRI manufacturer.
(3) The name of the intermediate supplier, if any.
(4) The amount of gas, measured in mcf, supplied by the taxpayer to the DRI manufacturer or the intermediate supplier, as applicable.
(5) The gas consumption volume certified to the taxpayer by the DRI manufacturer.
(6) The deemed taxable value of the gas.
(7) The amount of the severance tax credit.
(8) A certification that the cost of the gas sold to the DRI manufacturer or intermediate supplier, as applicable, has been reduced by an amount equal to the severance tax credit.
(9) A certification that the severance taxes calculated by the taxpayer have been determined on the deemed taxable value of the gas consumption volume without regard to the reduction in cost described in subdivision (8) of subsection (e), all in accordance with subsection (h).
(10) A certification signed by an officer of the DRI manufacturer under oath, stating:
a. The lesser of 1. the amount of gas consumed by the DRI manufacturer in the DRI plant and 2. the amount of gas supplied to the DRI manufacturer by the taxpayer or intermediate supplier, as applicable as certified by the DRI manufacturer to the taxpayer;
b. The dates and amounts of the cost reduction in gas otherwise subject to Alabama severance tax liability realized by the DRI manufacturer with respect to the DRI plant by virtue of the severance tax credit from plant completion through the end of the severance tax period in question;
c. The net present value of the deemed taxable value reductions to the end of the severance tax period in question;
d. A certification that a cost reduction in an amount equal to the severance tax credit has been or has been agreed to be given over to the DRI manufacturer or to the intermediate supplier and from the intermediate supplier to the DRI manufacturer, if applicable; and
e. The name of the intermediate supplier.
(11) The tax credit will be reported by the taxpayer as a one line reduction of the total severance taxes payable on the Department of Revenue, Sales, Use & Business Tax Division, Oil and Gas Offshore Producer's Tax Return forms, designated “O&G Offshore-1” and “O&G Production-1.” The taxpayer will not be required to report the tax credit on any other Department of Revenue Sales, Use & Business Tax Division forms, schedules, supplements, or worksheets.
(12) No additional forms will be required to be filed by the taxpayer with the Department of Revenue Sales, Use & Business Tax Division other than the schedule provided for in this subsection.
(f) Multiple taxpayers or intermediate suppliers. Should a DRI manufacturer or intermediate supplier acquire gas from more than one producer or person in charge of production that is otherwise subject to severance taxes, the DRI manufacturer may designate one or more than one such producer or person in charge of production as the taxpayer and may allocate gas consumption volume certified to the taxpayer by the DRI manufacturer among all such designated persons on any basis elected by the DRI manufacturer, provided, however, that the gas consumption volume allocated to any taxpayer in the applicable reporting period shall not exceed the lesser of (1) the amount of gas subject to severance tax supplied by the taxpayer during the reporting period to the DRI manufacturer or intermediate supplier, or (2) the amount of gas which the intermediate supplier has received from the taxpayer and which is otherwise subject to Alabama severance tax liability during the reporting period. Should a DRI manufacturer acquire gas from more than one intermediate supplier, the DRI manufacturer may allocate gas consumption volume among all such intermediate suppliers on any basis elected by the DRI manufacturer, provided, however, that the gas consumption volume allocated to any intermediate supplier in any reporting period shall not exceed (1) the lesser of the amount of gas supplied by the intermediate supplier to the DRI manufacturer during the reporting period or (2) the amount of gas the intermediate supplier received from the taxpayer, which amount is otherwise subject to the severance tax.
(g) Effect on allocation and distribution. The amount of the severance tax credit shall be charged against the net amount of tax revenues payable to the State General Fund under Sections 9-17-31 and 40-20-8 and shall not reduce the amount of severance tax revenues allocated and distributed to any county, municipality, school board, or custodian of school funds.
(h) No effect on severance tax base. In determining the amount of severance tax liability for any reporting period, no taxpayer shall reduce the taxable value of gas by the amount of the severance tax credit or the cost reduction to the DRI manufacturer or intermediate supplier, as applicable, resulting from the severance tax credit, but rather, the severance tax credit shall be allowed and calculated only after determination of the amount of the severance tax otherwise payable for the reporting period and before any cost reduction under this section.
(i) The provisions of this section shall expire as to DRI plants having a completion date after September 30, 2008, unless the provisions of this section shall be extended by further act of the Legislature.
(j) This section shall be construed liberally in favor of the DRI manufacturer, for the purpose of assuring that any qualifying DRI manufacturer receives the benefit of the cost reduction described in this section.
(Act 98–285, §§1, 2, 5.)