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S.B. No. 1505

S.B. No. 1505

AN ACT

relating to the appraisal for ad valorem tax purposes of a real
property interest in oil or gas in place.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
SECTION 1. Section 23.175, Tax Code, is amended to read as
follows:
Sec. 23.175. OIL OR GAS INTEREST. (a) If a real property
interest in oil or gas in place is appraised by a method that takes
into account the future income from the sale of oil or gas to be
produced from the interest, the method must use the average price of
the oil or gas from the interest for the preceding calendar year
multiplied by a price adjustment [market condition] factor as the
price at which the oil or gas produced from the interest is
projected to be sold in the current year of the appraisal. The
average price for the preceding calendar year is calculated by
dividing the sum of the monthly average prices for which oil and gas
from the interest was selling during each month of the preceding
calendar year by 12. If there was no production of oil or gas from
the interest during any month of the preceding calendar year, the
average price for which similar oil and gas from comparable
interests was selling during that month is to be used. The chief
appraiser [comptroller] shall calculate the price adjustment
[market condition] factor by dividing the price of imported
low-sulfur light crude oil in nominal dollars or the spot price of
natural gas at the Henry Hub in nominal dollars, as applicable, as
projected for the current calendar year by the United States Energy
Information Administration in the most recently published Early
Release Overview of the Annual Energy Outlook [comptroller’s
current calendar year statewide average price for oil or gas, as
applicable, forecasted for revenue estimating purposes] by the
price of imported low-sulfur light crude oil in nominal dollars or
the spot price of natural gas at the Henry Hub in nominal dollars,
as applicable, for the preceding calendar year as stated in the same
report [preceding calendar year actual statewide average price for
oil or gas, as applicable. For purposes of calculating the market
condition factor, “price” means the market value of oil or gas as
determined under Subchapter C, Chapter 201, or Section 202.053, as
applicable. The comptroller shall calculate the preceding calendar
year actual statewide average prices for oil and gas and the market
condition factors for oil and gas and publish that information to be
used for ad valorem tax appraisal purposes concurrently with the
current calendar year statewide average prices for oil and gas
forecasted for revenue estimating purposes]. The price for the
interest used in the second through the sixth [or a subsequent]
calendar year of the appraisal may not reflect an annual escalation
or de-escalation rate that exceeds the average annual percentage
change from 1982 to the most recent year for which the information
is available in the producer price index for domestically produced
petroleum or for natural gas, as applicable, as published by the
Bureau of Labor Statistics of the United States Department of
Labor. The price for the interest used in the sixth calendar year
of the appraisal must be used in each subsequent year of the
appraisal [shall reflect the same percentage rate increase or
decrease in the price for oil or gas, as applicable, as projected
for that calendar year by the comptroller for revenue estimating
purposes].
(b) The comptroller by rule shall develop and distribute to
each appraisal office appraisal manuals that specify the formula to
be used in computing the limit on the price for an interest used in
the second through the sixth year of an appraisal and the methods
and procedures to discount future income from the sale of oil or gas
from the interest to present value.
(c) Each appraisal office shall use the formula, methods,
and procedures specified by the appraisal manuals developed under
Subsection (b) [of this section].
SECTION 2. This Act applies only to the appraisal for ad
valorem tax purposes of a real property interest in oil or gas in
place for a tax year beginning on or after the effective date of
this Act.
SECTION 3. This Act takes effect January 1, 2012.

______________________________ ______________________________
President of the Senate Speaker of the House

I hereby certify that S.B. No. 1505 passed the Senate on
April 28, 2011, by the following vote: Yeas 31, Nays 0.

______________________________
Secretary of the Senate

I hereby certify that S.B. No. 1505 passed the House on
May 11, 2011, by the following vote: Yeas 142, Nays 0, two
present not voting.

______________________________
Chief Clerk of the House

Approved:

______________________________
Date

______________________________
Governor

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